IMPACT OF OIL PRICE FLUCTUATIONS ON NIGERIAN ECONOMIC GROWTH AND SECTORAL PERFORMANCE: AN ANALYSIS OF DIVERSIFICATION EFFORTS

Abstract

This study explores the impact of oil price fluctuations on Nigeria's economic growth and sectoral performance from 1995 to 2024. Employing a Vector Error Correction Model (VECM) and variance decomposition analysis, the study assesses how changes in oil prices impact overall economic growth, the performance of the agricultural and manufacturing sectors, and government revenues. The findings indicate that oil prices have a modest but increasing influence on Nigeria's economic growth, accounting for 2.36% of real GDP variations in the long term. The agricultural sector demonstrates resilience to oil price changes, with a decreasing sensitivity over time. Conversely, the manufacturing sector shows growing vulnerability, with oil prices contributing to 9.49% of output variations by the end of the period. Government revenues are notably affected by oil price fluctuations, particularly in the medium term, where they explain up to 38.17% of variations. These results underscore the complex and varied impacts of oil price shocks on different sectors of the Nigerian economy. The study concludes by advocating for targeted policies to enhance economic diversification, bolster sector-specific resilience, and improve fiscal management to mitigate the effects of oil price volatility on Nigeria's economy.