Oil Price Shocks, Exchange Rate Volatility and Investment in Nigeria

Oluwasegun David Ayeni

MPRA Paper from University Library of Munich, Germany

Abstract: Fluctuations in oil price or exchange rate usually create an uncertain investment climate that has been argued to affect returns to investment and the level of investment in any economy, especially developing countries like Nigeria. The objective of this paper is to examine the short run and long run effect of oil price shocks and exchange rate volatility on investment in Nigeria, using annual time series data from 1981 – 2016. The stationarity property of the series were examined using both Augmented Dickey Fuller (ADF) test and Phillip Perron (PP) unit root test, while the Autoregressive Distributed Lag (ARDL) Bounds Cointegration test was employed to examine if the series are cointegrated. The unit root results for both test are consistent and reveal that the series are a combination of I(0) and I(1), and the Bounds Cointegration test showed that the variables are cointegrated. Consequently, a short run and a long run ARDL model were estimated. The results show that exchange rate volatility significantly affects investment both in the short run and the long run, while oil price shock and other variables have insignificant impact. The study recommends among other things that government should strictly monitor the exchange rate system, boost local crude oil production by fixing the local refineries and increase expenditure on infrastructure, so as to boost investment in the economy.

Keywords: Fluctuations; Infrastructure; Investment; oil price; exchange rate; ARDL. (search for similar items in EconPapers)
JEL-codes: E2 (search for similar items in EconPapers)
Date: 2018, Revised 2018
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Published in AAU Annuals of Accounting, Educational and Social Research 5.2(2018): pp. 44-53

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