OIL PRICE VOLATILITY AND ECONOMIC GROWTH IN NIGERIA (1980-2014)
ABSTRACT
Oil as natural resource is an important commodity that has been recognized all over the world due to its impact in the industrial and commercial sectors of the world’s economy. Nigeria is highly recognized as an oil exporting and importing country. This study examines the effect of Oil Price Volatility on the Economic Growth in Nigeria. The study was carried out using the period of 1980-2014. The ordinary least square method was used to analyze data obtained. Four (4) explanatory variables were used; Oil Price Volatility, Inflation Rate, Exchange Rate and Interest Rate. The empirical result obtained suggested that Oil Price Volatility and Exchange Rate has a negative relationship with Economic Growth (GDP). Also, inflation rate and interest rate has a negative relationship with Economic Growth (GDP). This study affirms that oil price volatility has a negative impact on the economic growth (GDP) of Nigeria.
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
Background to the Study
Statement of the Research Problem
Statement of the Problem
The objectives of the Study
Scope of the Study
Hypothesis of the Study
Limitations of the Study
Structure of the Study
CHAPTER TWO:  LITERATURE REVIEW
2.1 Conceptual Literature
2.2 Theoretical Literature
2.3 Empirical Literature
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Population and Sampling Technique
3.4 Model Specification
3.5 Variables Definition and Clarification
3.6 Sources of Data
3.7 Methodology
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction
4.2 Presentation of Results
4.3 Discussion of Results
CHAPTER FIVE: SUMMARY FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendation
BIBILIOGRAPHY
APPENDIX
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
The need to promote the key sectors has continued to be a major concern of most developing economies. The reason for this interest in these sectors especially in the manufacturing sector can be traced to the fact that a significant increase in the manufacturing performance offers prospect of availability of manufactured product increased employment, greater efficiency, improved balance of payment and higher technological innovation(CBN 2002). According to Adedipe (2004), when Nigeria gained politically independence in October 1960, agricultural production was the main stay of the economy, contributing about 70% of the Gross domestic product (GDP), and responsible for about 90% of foreign government revenue. The post independent period till mid-1970s witness a fast advancement of industrialized capacity and output, as the contribution made by the manufacturing sector to GDP rose from 4.8% to 8.2%. Nevertheless, this pattern changed when crude oil became very important to the world economy which leads to total reliance on the product.
Notwithstanding, there was the problem of oil price volatility, which to a large extent has adversely affected the manufacturing sector productivity in Nigeria since 1973, substantial fluctuations in the international price of crude oil have had for raising implications for the country’s macroeconomic policies Olapoenia (1986), Okigbo (1973), Iwayemi (1995). The price of crude petroleum rose for the first time in Nigeria in response to the uncertainties created by the Arab- Israel War, which erupted in October 1973. The resultant rise in price of crude oil generated a total of 9.2 billion in revenue for Nigeria in 1994 as the country exported 108 tons of crude oil that year Mandal (1977).
Although the oil price increase in 1973 was short lived, between 1979 and 1980, the price of oil rose in the international market between $35 and $40 a barrel. The rise in price again was due to the Iranian revolution. In response Nigeria produced 84-2.5 million barrels in 1979 and realized N930 million “the Africa Guardian (1986), First Bank Business Report (1990). By 1990 a sign of relief was welcome with the price of oil in the international market soared as a result of the gulf war between Iraq and Kuwait, and made Nigeria earning from crude oil export reached N106.62 million as against the targeted N38.62 million. These translate into windfall of N68 million since the exchange rate was stabilized at N9 to N11 between September and December 1990. The revenue gained from the gulf crises was however not translated to productive and increased manufacturing productivity.
In the late 1990s and early 2000 crude oil maintained position as the highest contributor to the federal account. This was shown in the year 2003 annual budget out of estimated revenue of N1,819.214 billion, a total of N1,201.789 billion representing 61.5% is expected to be generated from oil. There was also a sharp fall in crude oil prices from an average of N110 to below N60 average in the late 2014 oil glut. This implies more than g40% decrease in the real national income of the net-exporting countries.
This study is motivated by the fact that Nigerians relies mainly on crude oil export revenues which represent about 90% of the total export earnings and on average, about 70% of  government revenue in annual budgets but given the volatile nature of crude oil prices, it is therefore important to analyze the impact of these fluctuations on the Nigerian economy.
STATEMENT OF THE RESEARCH PROBLEM
Nigeria like many other developing nations has witnessed continuous oil price instability over the years. The high price of oil in the early 1970 led to a massive growth in industrialization and other aspect/areas of the Nigerian economy.
 However, hopes that Nigeria will regain the strong growth momentum that characterized its performances in 1970s are unlikely to be realized in the near terms growth in the 70s was driven by rapid expansion of oil production that quadrupling of the declared price of oil and the massive public sector investment in infrastructure.
However, the Nigerian economy uniquely qualifies as both an oil exporting and importing economy, by reason of the fact that she exports crude oil, but imports refined petroleum products. Thus, making conclusive and authoritative statement on the impact of oil price volatility on the Nigerian economy is therefore difficult hence the study.
Also, the study is motivated by the fact that, Nigeria relies heavily on crude oil export revenues which represents about 90% of the total export earnings and on average, about 70% of the government revenue in annual budgets but given the volatile nature of the crude oil prices, it is therefore vital to analyze the potential effects of these fluctuations on the Nigerian economy.
Export and balance of payment imbalance with continuous decline in oil price and heavy reliance on oil revenue, the Nigerian economy is likely to be faced with constrained growth on some essential sectors of the Nigerian economy such as the manufacturing sector by limiting import capital. Thus in turn will result in investment falling below the level necessary for the high rate of growth targeted in the vision 2020.
STATEMENT OF THE PROBLEM
1.    What are the determinants of oil price volatility in Nigeria?
2.    What is the relationship between oil price and level of economic activities in Nigeria?
3.    Does oil price volatility affect economic growth (GDP) in Nigeria?
1.4    THEOBJECTIVES OF THE STUDY
1.    To investigate the determinants of oil price volatility in Nigeria.
2.    To know the relationship between oil price and level of economic activities in Nigeria.
3.    To examine the effect of oil price volatility on economic (GDP) in Nigeria.
1.5    SCOPE OF THE STUDY
    In order to ensure that a research investigation is directed and focused, every study has its own boundaries (Agbonifoh and Yomere, 1999). To this end, the scope of a study maybe defined geographically, temporarily and in terms of subject matter and population.
    In this research work, the area of study is Nigeria. The study examines oil price volatility and economic growth in Nigeria using time series data that covers the period of 1980-2014.
1.6    HYPOTHESIS OF THE STUDY
    Based on the stated objective, problem statement and scope of the study, I want to hypothesize that:
H1: Oil price volatility does have an effect on economic growth (GDP) in Nigeria.
H2: There is a relationship between oil price and level of economic activities in Nigeria.
1.7    LIMITATIONS OF THE STUDY
This study is constrain by other several factors among which are the problem of inadequate data, which is same with most research works in the country. Obtaining information in Nigeria is not only difficult but generally unreliable. This is because the management and storage is not well developed.
Notwithstanding, the unreliable information attempt will be made to optimize the available data on subject by carefully reviewing the relevant data.
In addition to the poor sectoral data is the problem of cost of the research work, and research work of this nature generally cost money.
1.8    STRUCTURE OF THE STUDY
    This study is organized into five chapter, chapter one contains the introduction, statement of the problem, objective of the study, hypothesis of the study, scope of the study, limitation of the study and structure of the study. Chapter two contains a review of relevant literature on oil price volatility and economic growth in Nigeria. Chapter three contains the research methodology. Chapter four shows the analysis and interpretation of the regression result while chapter five will focus on the findings of the study, recommendation to oil price volatility and economic growth in Nigeria and conclusion.