Crude Oil Price Fluctuations and Nigerian Balance of Payments 1987-2017

Abstract

Until we realized that oil is a blessing to a nation in disguise and put our heads in the same basket to move this country to the promised land when the proceed from oil will no longer be shared among capitalists but used for development of other sectors to boost export and strengthen balance of payments. Crude oil prices and balance of payment are two key elements of the Nigerian economy because of the over-dependence on the oil sector. Obviously, our economy depends on the oil sector and neglects other sectors of the economy (agricultural, manufacturing, and service) which makes the economy volatile to shock in oil price fluctuations. This leads to the syndrome of Dutch disease because oil revenues are perceived as the only hope for prospering our economic growth and development. This study investigates oil price fluctuations and Nigerian Balance of Payments using time series data spanning from 1987 to 2017 and employed Auto-regressive Distributive Lag (ARDL) model. It was discovered in the study that there exists a long run relationship between the balance of payments and the crude oil prices in Nigeria within the study period. Furthermore, the study revealed that in the long run, crude oil prices and exchange rate are the determinants of the balance of payments while the short run dynamics pointed out that the past value of inflation rate and crude oil prices are what determine the balance of payment direction in the short run. The study, therefore, recommends that the appropriate authorities should consider diversification of the economy export base from oil, exchange rates review, inflation control measures as well as interest rate monitoring so as to get the best balance of payments position.