Assessing Nigeria’s Resilience to Oil-price Volatility: Evidence from a Vector Autoregression of GDP Dynamics and Policy Buffers
Korter Grace Oluwatoyin
*
Department of Statistics, Federal Polytechnic Offa, Nigeria.
Lawal Praise Olamide
Department of Mathematics & Statistics, Kwara State University, Malete, Nigeria.
King Korter Olumakinde
Department of Computer Engineering Federal University of Technology, Minna, Nigeria.
Adeoye Akeem Olanrewaju
Department of Statistics, Federal Polytechnic Offa, Nigeria.
Ojo Olufemi David
Department of Statistics, Federal Polytechnic Offa, Nigeria.
Adewoye Kunle Bayo
Department of Statistics, Federal Polytechnic Offa, Nigeria.
Jemilohun Vincent Gbenga
Department of Statistics, Afe Babalola University, Ado-Ekiti, Nigeria.
Salau Ganiyat Monishola
Department of Statistics, Federal Polytechnic Offa, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
Aim: This study constructs a first-difference Vector Autoregression (VAR) model to analyze the dynamic interplay between global oil-price shocks and Nigeria’s real GDP over the period 1990–2023.
Methodology: This study began by subjecting annual series of Brent crude prices and the World Bank’s GDP index to Augmented Dickey-Fuller and Phillips-Perron tests, confirming their integration of order one and justifying modeling in first differences. Optimal lag length is determined via Akaike, Schwarz, Hannan-Quinn, and FPE criteria, leading to a VAR(3) specification. Orthogonalized impulse-response functions reveal that a one-standard-deviation oil-price innovation yields a modest, transitory GDP response-peaking at approximately +0.9% in the second year and dissipating by year five-with all 95% confidence bands encompassing zero. Forecast-error variance decomposition further shows that oil-price shocks explain no more than 13% of GDP forecast variance at horizon ten, while endogenous dynamics dominate. Conversely, GDP innovations account for roughly 30% of oil-price variance after four years, underscoring limited feedback.
Result: These findings corroborate rapid mean reversion documented in commodity-dependent economies and mirror evidence that oil revenues contribute marginally to output volatility.
Conclusion: The paper concludes with policy prescriptions for rule-based stabilization funds, automatic fiscal triggers, and accelerated diversification into agriculture, manufacturing, and services to bolster macroeconomic resilience and sustain non-oil growth.
Keywords: Nigeria, gross domestic product, oil‐price shocks, vector autoregression, impulse response functions, forecast‐error variance decomposition, economic diversification