The Nexus between Nigerian Government Spending and Domestic Output in the Presence of Long-Term Crude Oil Price Shock: A Conditional Unrestricted Equilibrium Correction Model Approach
This paper is an empirical analysis of
provisional unrestricted level relationship between Nigerian domestic output
measured by Gross Domestic Product (GDP) and government spending proxied by
capital and recurrent expenditures in the presence of static regressors such as
crude oil prices and federal government retained revenues. We estimate an ARDL
(1,0,1) using a single-equation approach. Results show that government
expenditures have negative but statistically insignificant effects on domestic
output in the long-run. Similarly, negative short run effects are established
amongst the variables. However, recurrent expenditure is statistically
significant in the short-run. Whilst federal government retained revenue has a
positive and significant effect, crude oil price exhibited negative
relationships with domestic output both at level and in the short-run dynamics.
Also a high speed of adjustment implies that Nigerian Gross Domestic Product is
extremely sensitive to shocks on the government spending in the long-run. An
upward trend forecast between 2014 and 2020 is an indication of the continued
positive impact and the government retained revenue will exert on the domestic
output in the long-run.
References
[1]
Omoniyi, L.G., Olawale, A.N. and Matanmi, O.G. (2015) A Conditional Restricted Equilibrium Correction Model on Nigerian Stock Exchange All-Share Index and Macroeconomic Indicators with 2008 Global Financial Crisis Effects: A Univariate Framework Approach. American Journal of Mathematics and Statistics, 5, 150-162.
[2]
Price Water Cooper Report (2013) Shale Oil: The Next Energy Revolution. Retrieved November 28, 2015.
www.pwc.com/gx/en/oil-gas-energy/publication/pdfs/pwc-shale-oil.pdf
[3]
Schmidt, T. and Zimmermann, T. (2005) Effects of Oil Price Shocks on German Business Cycle. Rhine-Westphalia Institute for Economics Research RWI Discussion Paper No 31.
[4]
Blanchard, O.J. and Gali, J. (2007) The Macroeconomic Effects of Oil Price Shocks: Why the 2000’s So Different from the 1970s. NIBER Working Paper 13368.
[5]
Olomola, P. (2006) Oil Price Shocks and Aggregate Economic Activity in Nigeria. African Economic and Business Review, 4, 40-45.
[6]
Oriakhi, D.E. and Osaze, I.D. (2013) Oil Price Volatility and Its Consequences on the Growth of the Nigerian Economy: An Examination (1970-2010). Asian Economic and Financial Review, 3, 683-702.
[7]
Wakeford, J.J. (2006) The Impact of Oil Price Shocks on the South African Macroeconomy: History and Prospects. South African Reserve Bank Conference 2006, Johannesbourg, 2006.
[8]
Adissei, J. and Georg, P. (2007) Oil Price Shocks, Monetary Policy and Aggregate Demand in Ghana. Reihe Okonomie Economics Series, No. 212.
[9]
Amara, B. (2012) The Relationship of Oil Prices and Economic Growth in Tunisia: A Vector Error Correction Model Analysis. Romanian Economic Journal, 15, 3-22.
[10]
Akanni, K.A. and Osinowo, O.H. (2013) Effect of Fiscal Instability on Economic Growth in Nigeria. Advances in Economics and Business, 1, 124-133.
[11]
Nathan, P. (2012) The Impact of Fiscal Policy on the Nigerian Economy. International Review of Social Sciences and Humanities, 4, 142-150.
[12]
Yakubu, M., Asare, B.K. and Gulumbe, S.U. (2013) Effects of Monetary-Fiscal Policies/Interaction on Oil Price and Output Growth in Nigeria. CBN Journal of Applied Statistics, 4, 55-74.
[13]
Iyeli, I.I., Uda, E.B. and Akpan, E. (2012) The Relative Effectiveness of Monetary and Fiscal Policies in Economic Stabilization in a Developing Economy: An Empirical Evidence. Nigeria Annals of Humanities and Development Studies, 3, 87-138.
[14]
Alege, P.O. and Izedonmi, I.O.F. (2008) The Impact of Monetary and Fiscal Policy on the Real Gross Domestic Product of Nigeria, 1970-2003. The West African Financial and Economic Review (WAFER), 2, 32-58.
[15]
Ogbole, O.F., Amadi, S.N. and Essi, I. (2011) Fiscal Policy and Economic Growth in Nigeria: A Granger Causality Analysis. American Journal of Social and Management Sciences, 2, 356-359.
http://dx.doi.org/10.5251/ajsms.2011.2.4.356.359
[16]
Pesaran, M.H. and Shin, Y. (1999) An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. In: Strom, S., Ed., Chapter 11 in Econometrics and Economic Theory in the 20th Century the Ragnar Frisch Centennial Symposium, Cambridge University Press, Cambridge, 371-413.
[17]
Pesaran, M.H., Yongcheol, S. and Richard, J.S. (2001) Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Economics, 16, 289-326. http://dx.doi.org/10.1002/jae.616
[18]
Engle, R.F. and Granger, C.W.J. (1987) Cointegration and Error Correction Representation, Estimation and Testing. Econometrica, 55, 251-276. http://dx.doi.org/10.2307/1913236
[19]
Johansen, S. (1988) Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, 12, 231-254. http://dx.doi.org/10.1016/0165-1889(88)90041-3
[20]
Omoniyi, L.G. and Olawale, A.N. (2015) An Application of ARDL Bounds Testing Procedure to the Estimation of Level Relationship between Exchange Rate, Crude Oil Price and Inflation Rate in Nigeria. International Journal of Statistics and Applications, 5, 81-90.
[21]
Omoniyi, L.G., Olawale, A.N., Matanmi, O.G. and Taofik, A.O. (2015) Forecasting Real Economic Growth from Relative Depth of Financial Development in Nigeria: A Multivariate Framework Approach. 39th Nigerian Statistical Association 2015 Annual Conference, Oshogbo, 2015.
