This study aims at investigating the impact of crude oil price on the economy of Nigeria over the period 198I-2015. The effects of variables such as external reserves, exchange rate, consumer price index (CPI) on economic growth have been studied as well. The data used was secondary data obtained from the statistical bulletin of Central Bank of Nigeria (CBN). The study uses multiple regression to establish the relationship between the variables, unit root test was used to ascertain if the variables are stationary or not and correlation analysis were adopted to determine the degree of the relationship between the variables used. The results therefore, revealed that crude oil price and other explanatory variables has significant and positive effect on GDP, though External Reserves is insignificant and Consumer P0rice Index which is proxied by inflation rate has significant but negative impact on economic growth in Nigeria, which means that except Inflation rate, other variables have the potential of increasing GDP as they increase. The study therefore recommends that government should initiate policies that will diversify the income stream of Nigeria’s economy instead of depending mainly on crude oil as source of revenue, and should ensure low and stable prices as high inflation rates decreases the growth of the Nigerian economy.
1.1 Background to the Study
The oil sector is a key sector in the Nigeria economy. This is because the revenue from oil is the major growth factor in the Nigeria economy. Resource generated from it, fund virtually all capital expenditures in the Nigeria system. The oil sector is closely linked with the financial sector, because the financial sector in every country is the oil which fuels the economy of such country and the bedrock for the sustenance and continuity of the sovereignty of a country.
Nigeria achieved independence from Britain in 1960, a time when oil had little or no role in the management of the Nigeria macro economy. Ayadi etal(2000) reported that the discovery of oil in commercial quantities at obibiri, in Nigeria’s Niger Delta region, occurred in 1956,but production did not start until 1958. However, in 2000 and 2002, this sector of the economy took a big hit. As for the petroleum sector, its relative significance has dominated other sectors, especially since 2000.Therefore, while the petroleum sector grew in importance over time, the industrial sector did not experience much growth.
The country became a member of the organization of the petroleum exporting countries (OPEC) in 1971. In 2003, it was the fifth-Largest supplier of crude oil to the US. It is the seventh-largest producer in the world. The economy of Nigeria is heavily dependent on oil. Over 80% of government revenue comes from this source.
In Nigeria, the oil sector has assumed a central role in the economy in such a way that it cannot be over emphasized. In fact, Iyoha (2003) had it that between 1981 and 1999, Nigeria received over 228 billion US dollars from petroleum export. The growth in GDP since the early 70’s is largely attributable to crude oil production.
Nigeria was a predominantly agrarian economy before the discovery of oil in commercial quantity in 1956 and remained so up to the early part of the 1970’s, there after oil exerted tremendous impact on the economy. In Nigeria’s attempt to make oil exploration a lucrative business, there was a shift in its dependence from the agricultural sector to the oil sector. This attitude has brought about a major decline in the agricultural sector and even other sectors of the economy, thereby making the Nigerian economy a mono-economy.
However, petroleum is one of the most cherished natural resources all over the world. Its usefulness is seen in our day-to-day life and activities. Thus, it is often being referred to as the mother of all commodities because of its importance in the manufacture of wide variety of materials. One will not realize the usefulness and benefits of petroleum until the supply are restricted and threatened. This then brings about whether the price of oil has a positive or negative effect on the economy of Nigeria.
1.2 Statement of the Problem
The growth performance of the Nigerian economy has been less than satisfactory during the past three decades. Since the first oil price shock of 1974, oil has annually produced 90% Nigeria’s export income from 1970 to 1990 even till date but yet these rents have failed to raise the income of Nigerian’s and also have done little to reduce poverty.
Therefore, the physical distribution of petroleum products by the companies are a complex task and therefore have a lot of problems associated with. The basic problems include first, delay in the arrival time of petroleum products thereby affecting the sales of turnover of the oil marketers. There is also issue of poor availability of vendors, thereby affecting the rate of petroleum products distribution. Also, there is an offshoot of poor management of the companies’ physical distribution strategies. The same applies to the high cost of transportation which equally could affect the prices of the petroleum products to the detriment of the customers.
These problems illustrated above go a long way in hindering the wide delivery and circulation of petroleum products to the customers/users at the right time.
1.3 Research Questions
The study is tailored to provide answers to the following questions;
- To what extent does crude oil price influence economic growth in Nigeria?
- Does exchange rate of the Naira visa-vis the dollar impact on the economy of Nigeria?
- How does external reserve influence the Gross Domestic Product in Nigeria?
- To what extent does consumer price index (CPI) affect economic growth in Nigeria?
1.4 Objective of the Study
The major objective of the study is to analyze the impact of crude oil price on economic growth in Nigeria.
The specific objectives include:
- To investigate the effect of crude oil price on economic growth in Nigeria.
- To ascertain the impact of exchange rate levels on the economy of Nigeria.
- To determine the impact of external reserve on GDP in Nigeria.
- To find out the influence of consumer price index on economic growth in Nigeria.
HO1: crude oil price has no significant impact on the economy of Nigeria
HO2: Exchange rate has no significant effect on economic growth in Nigeria
HO3: External reserve has no significant effect on Gross Domestic product in Nigeria.
HO4: Consumer Price Index has no significant impact on economic growth in Nigeria.
1.6 Significance of the Study
These studies also shade light on the policies that have been taken to reform the economy and the challenges faced by the oil sector. Moreover, in view of this, we shall try to research on the impact of crude oil in the economy of Nigeria by using GDP as my dependent variable.
Therefore, this research work is significant as it will be useful to policy makers and serves as a reference material for members of the academic and the public to sustain the economy.
This study will assist petroleum products marketers to design better marketing activities in their decision to purchase and distribution of petroleum product business.
It will also provide petroleum marketers with a tool on how to price their products in relation to the prevailing policies.
1.7 Scope and limitation of the Study
The primary objective of the study is to critically evaluate the impact of crude oil price on the economy of Nigeria. However, the scope of this research covers between1981 to 2015.
The scope is vast and fund consuming. The data for analysis in this work are based on published data from central bank of Nigeria statistical bulletin.
Research works of this nature are often faced with some limitations which are beyond the control of the researcher.
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