Balance of Payments Response to Crude Oil Price Asymmetry in Nigeria: An NARDL Approach

Abstract

This study investigates the Balance of Payments Response to Crude Oil Price Asymmetry in Nigeria from 1981 to 2018 using the Nonlinear Autoregressive Distributed Lag technique. The results from bounds test revealed that there is cointegration between crude oil prices and balance of payments, exchange rate and oil exports. Crude oil prices were decomposed into positive and negative shocks to  capture asymmetry. The short run estimates reveal that positive shocks of crude oil price generates a positive response from balance of payments and also the one-period lag of balance of payments impacts positively on current period balance of payments. Meanwhile, in the long run, estimate show that only negative shocks of crude oil prices are statistically significant and they generate a negative response in balance of payments. Furthermore, the error correction coefficient shows that the speed of adjustment towards long run equilibrium is at 59.5 per cent. Therefore, the study concludes that crude oil prices have direct link with the balance of payments and the study recommend that the authorities should encourage local production and discourage importation of consumer goods so as to reduce the weight assigned to crude oil in the balance of payments.