ANALYSIS OF OIL PRICE, EXCHANGE RATE, AND ECONOMIC GROWTH NEXUS IN NIGERIA

Abstract

This study examines the nexus between oil price, exchange rate volatility, and economic growth in Nigeria using the Fully Modified Ordinary Least Squares (FMOLS) estimation technique. The findings reveal that exchange rate volatility has a statistically significant negative impact on economic growth, highlighting the adverse effects of currency fluctuations on macroeconomic stability. Inflation also negatively affects GDP, though its impact is statistically insignificant. Conversely, oil price movements exert a significant positive influence on economic growth, underscoring Nigeria's dependence on crude oil revenue. Interest rates also have a significant positive effect, suggesting that stable financial conditions contribute to economic expansion. However, trade openness does not significantly explain GDP variations. The Johansen cointegration test confirms the existence of a long-run relationship among these macroeconomic variables. Based on these findings, policymakers should prioritize exchange rate stabilization through sound foreign exchange policies, increased foreign reserves, and export diversification to mitigate the negative effects of currency volatility. Furthermore, the government should implement strategic policies for managing oil revenues by investing in critical sectors such as infrastructure, education, and healthcare to ensure long-term economic resilience beyond oil dependency. Institutional reforms aimed at improving governance, reducing corruption, and enhancing resource allocation efficiency are also essential for fostering sustainable economic growth.