OIL PRICE SHOCKS AND CONSUMPTION EXPENDITURE IN NIGERIA

EVIDENCE FROM THE ERROR CORRECTION MODEL

Abstract

 Nigeria is an oil-exporting country with a low income and a decreasing standard of living. As a result, consumers in Nigeria tend to spend most of their income on consumable goods. The effect of consumption expenditure in an economy is influenced by a variety of factors, including consumer income, the consumer price index, and oil price volatility. Changes in oil prices can have a significant impact on consumer spending, manufacturing output, and national and global economic performance. This study examines the linearity assumption and shock effect of oil price volatility and the consumer price index on consumption expenditure in Nigeria between 1980 and 2021. The Error Correction Model was used to correct the disequilibrium in the study. The findings of the study show that there is a long-run relationship between oil price volatility, the consumer price index, and consumption expenditure in Nigeria. The value of 1.07 indicates that the imbalance in consumer expenditure changes over the sampled period can be attributed to oil price volatility and the persistent increase in the consumer price index. The study recommends that the government adopt a macroeconomic agenda that focuses on alternative sources of government funding (reducing reliance on oil revenues), fiscal restraint in the use of crude oil receipts, and aggressive saving of oil revenue booms in the future to withstand the fluctuations of future oil shocks.