Shock de precios del petroleo y el desempeno macroeconomico de Nigeria.
| Autor | Akinleye, Simeon Oludiran |
Oil Price Shocks and Macroeconomic Performance in Nigeria Introduction
Nigeria is highly vulnerable to fluctuations in the international oil market, given the fragile nature of the economy and the heavy dependence on crude oil proceeds, despite being the sixth largest producer of oil in the world (Akpan, 2009). The provision of plausible explanations for the relationship between oil price movements and macroeconomic performance has occupied the attention of economists over the last four decades. The steep upward trend in the price of crude oil in recent years, reaching a record nominal high of US $147 in mid-2008 and a sharp drop to US $46 a barrel a year later, has led to increasing concern about its macroeconomic implications, both abroad and in Nigeria.
The Nigerian economy has consistently relied on export of crude oil for foreign exchange earnings and revenues, particularly as it accounts for over 95 per cent of export earnings and about 85 per cent of government revenues. Its contribution to GDP, however, stood at 17.85 per cent in 2008 (Aliyu, 2009). Nigeria's oil statistics show that the country has an estimated 36.2 billion barrels of oil reserves which places the country as the second largest in terms of oil reserve on the African continent. The Energy Information Administration (2009) estimates Nigeria's effective oil production capacity to be around 2.7 million barrels per day. Serious drop in oil production levels, which affected exports and the plummeting of world oil prices in late 2008 resulted in huge revenue gaps for the country. Equally, the country is exposed to oil price shocks through massive importation of refined petroleum products since the collapse of local refineries in the late 1980s. Currently, the country imports almost 85 per cent of refined products for local consumption. The near collapse of the power generation and distribution industry in the country further accentuates the acute shortage of energy. The burden on the government to provide energy resources at subsidised rate became very unwieldy, and between 1999 and 2008, the Federal Government of Nigeria reduced its subsidy approximately nine times. This adversely affected production, consumption and investment decisions and hence the rate of economic growth (Aliyu, 2009).
Theoretically, a transmission channel mechanism has been devised to explaining the media through which oil prices affect real economic activity. Notably, two channels; supply and demand, have been prominent in the literature, while other postulated channels such as economic policy reaction, valuation and asymmetric response channels have been viewed to be ambiguous with the latter channels technically oriented. The supply side effects relate to the fact that crude oil is a basic input to production and commerce, and hence an increase in oil price leads to a rise in production and distribution costs that induce firms to lower output. Changes in oil price also entail demand-side effects on consumption and investment. Oil price changes also influence foreign exchange markets and generate stock exchange panics, higher interest rate, produce inflation and eventually lead to monetary and financial instability (Jimenez-Rodriguez and Sanchez, 2005).
Furthermore, an oil-price increase leads to a transfer of income from importing to exporting countries through a shift in the terms of trade. The magnitude of the direct effect of a given price increase depends on the share of the cost of oil in the national income, the degree of dependence on imported oil and the ability of end-users to reduce their consumption and switch away from oil. In net oil-importing countries, higher oil prices lead to inflation, increased input costs, reduced non-oil demand and lower investment. Tax revenues fall and the budget deficit increases, due to rigidities in government expenditure, which drives interest rates up. Given the resistance to real declines in wages, an oil price increase typically leads to upward pressure on nominal wage levels, thereby stimulating wage pressures with far reaching implications which manifests, possibly in all the postulated channels: supply, demand, economic policy reaction, valuation and asymmetric response (Wakeford, 2006).
A large body of research has examined the impact of oil price shocks on output and summarily suggests that oil price volatility tends to exert a positive effect on the GDP growth for a net oil exporting country and a negative effect on net oil importing countries. Early empirical studies found a linear negative relationship between oil prices and real activity in oil importing countries, while results from studies done in the mid-1980s suggest reversal of initial outcomes in light of the declines in oil prices that occurred over the second half of the 1980s. Thus, Mork (1989), Lee et al. (1995) and Hamilton (1996) introduced non-linear transformations of oil prices to re-establish the negative relationship between increases in oil prices and economic downturns. Recently, Hamilton (2003) and Jimenez-Rodriguez and Sanchez (2005) also found evidence of a non-linear relationship between the two variables for the US economy. The issue of asymmetry in non-linear relationship between GDP and oil prices in the literature has thus proposed two other non-linear transformations, namely: scaled specification (Lee et al., 1995), taking the volatility of oil prices into account; and net specification (Hamilton, 1996), which considers the amount by which oil prices have gone up over the last year. However, asymmetries in the response of real activity to oil prices have been relatively ambiguous.
More concretely, this explanation relates to adjustment costs resulting from the implied sectoral reallocation of resources. According to this argument, an increase (decrease) in oil prices would lead to a contraction (expansion) in sectors that make use of oil in the production process. The contractions and expansions that occur in energy-efficient and energy intensive sectors as a result of changes in oil prices thus stimulate adjustments and readjustments that could give rise to the asymmetric effect (Akpan, 2009).
This paper adopts a unique quarterly data on crude oil price by using the Bonny light crude oil price obtained from the Central Bank of Nigeria (CBN) online statistics database for its analysis, since the Bonny light crude accounts for more than 55 per cent of the Nigerian crude oil export over the years as against the UK Brent crude oil price and the Nigerian-Forcados crude oil price employed by other authors (Olomola and Adejumo, 2006; Akpan, 2009; Aliyu, 2009 and Chuku et al., 2011). This thus ensures that the macroeconomic consequence of shocks to oil price in Nigeria is captured using more reliable crude oil price data. The study also examined the effects of shocks to oil revenue on key macroeconomic variables and was able to show the differences between symmetry and asymmetry shocks to oil price and oil revenue as well as their impact on the Nigerian economy using separate models, a novel approach. Furthermore, aside from the plausible discoveries made, the study was able to provide empirical evidence that shows that both positive and negative shocks to oil revenue relatively increase the level of external reserve in the mid to long run. This outcome could be traceable to the steady resort to external borrowings among different political regimes in the period covered, with salutary implication on importation of capital goods for infrastructural projects as contained in series of national development plans. Similarly, available data revealed less demand pressure on external reserves in periods of sharp decline in oil revenue. This thus neutralized the downside effects that expectedly would have emanated from negative shocks to revenue from oil export.
The rest of the paper is structured as follows. Section I presents the literature review, while section II explains the theoretical framework and methodology, including sources of data and analytical techniques. The empirical result is discussed in section III, with conclusion provided in the final section.
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Literature Review
A number of empirical works on the relationship between oil prices fluctuations and economic activity has been carried out using different estimation approaches. By looking at the channel of transmission of oil price shocks to the larger economy, many researchers have argued that fluctuations in oil prices are linked to macroeconomic performance.
I.1. Developed Countries
Bernanke et al. (1997) studied the role of monetary policy as the central issue rather than a factor contributing to discontinuity in the oil price-GDP relationship. Evidences from their impulse response functions show that had the Federal Reserve maintained the funds rate at the pre-shock level, most of the GDP response to oil price over the 1973, 1979-1980, and 1990 episodes would have been avoided. This suggests that most, if not all, of the reduction in GDP during the recessions following those episodes was attributable to monetary policy rather than the oil price shocks themselves.
Hamilton and Herrera (2001) reexamined the Bernanke et al. (1997) study, and arrived at a diametrically opposite conclusion about the relative contributions of monetary policy and oil price shocks to the recessions following the 1973, 1979-1980, and 1990 oil price shocks. From their analysis of the impulse response functions, they discovered that the potential of monetary policy to avert the contractionary consequences of an oil price shock is not as great as suggested by the analysis of Bernanke et al. Rather, oil shocks appear to have a bigger effect on the economy than suggested by their VAR, and they were unpersuaded of the feasibility of implementing the monetary policy needed to offset even small shocks.
It is believed that monetary policy's response to oil price shocks can cause aggregate economic...
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