THE IMPACT OF OIL PRICE SHOCKS ON EXCHANGE RATE AND ECONOMIC GROWTH IN NIGERIA: AN ARDL BOUND TEST COINTEGRATION APPROACH
This study seeks to investigate the impact of Oil Price shocks on Exchange rate and Economic growth in Nigeria using annual time series data from 1981-2019. The study establishes two equations, the GDP equation, and the Exchange Rate equation, and applies the Bounds test co-integration analysis and ARDL model to determine the existence of the long run and the short-run relationship between variables of each equation. The results from the Bounds test analysis depicted the strong rejection of the null hypothesis of no co-integration amongst the variables of the GDP equation at a 5 percent level of significance, and this implies the existence long-run relationship between GDP, Oil Price, Exchange rate, and other variables included in the GDP equation. However, no evidence of a long-run relationship was found between Oil Price, Exchange Rate, and the rest of the variables included in the Exchange Rate equation. Results from the ARDL model for the GDP equation depict a significant positive relationship between oil price and GDP both in the short run and long run. The result implies that a persistent rise in oil prices by 1% will lead to a 0.85% increase in the GDP. Similarly, oil price, rate of interest, and exchange rate are a significant determinant of Nigerian economic growth in the long run. In the short run, oil price significantly affects the exchange rate. These findings imply that changes in the price of oil exert substantial effects on economic growth and exchange rates in Nigeria.