External shocks and output composition: evidence from Nigeria

Abstract

PurposeThe study investigates the impact of external shocks on output composition (consumption and investment) in Nigeria for the period 1981:Q1– 2018:Q4. Trade-weighted variables from the country's five major trading partners are constructed to capture the impact.Design/methodology/approachThe study employs a block exogeneity open economy structural vector autoregressive (SVAR) analysis in studying the stated relationship.FindingsThe study reveals that external shocks significantly affect consumption and investment in Nigeria. Results from the structural impulse response function suggest that foreign output, real effective exchange rate and foreign interest rate have significant negative effects on consumption and investment. Specifically, results from error variance decomposition show that foreign inflation and real effective exchange rate shocks are major drivers of fluctuations in consumption and investment in Nigeria. Interestingly, the study finds that oil price shock accounts for minor variations in consumption and investment in Nigeria.Research limitations/implicationsThe findings suggest that consumption and investment in Nigeria are substantially and largely driven by external shocks.Practical implicationsThere is need for the monetary authority and the Nigerian government to design appropriate policies to stabilise the naira and salvage the country's exchange rate from unexpected large swings so as to reduce the vulnerability of the economy to external shocks.Originality/valuePrevious studies on external shocks have concentrated on the impact of external shocks on aggregate variables such as output and inflation, while few studies on external shocks in Nigeria capture external shocks through single-country data. This study differs from previous similar studies in Nigeria in two ways. First, the study examines the impact of external shocks on output composition such as consumption and investment. Second, the study captures the impact of external shocks on the two components of gross domestic product (GDP) by constructing trade-weighted variables from Nigeria's five major trading partners.

Disaggregated crude oil prices and stock market behaviour in Nigeria: Evidence from sectorial analysis

“…One major implication of this is that the industrial sector relies more on importing capital goods. Hence, the devaluation or depreciation of Naira will increase the cost of these capital goods, which in the long run might discourage potential investors in the sector (Ojeyinka & Yinusa, 2021).…”

“…Specifically, the crude oil price benchmark plummeted to $28 per barrel from $57, while the expected revenue was reduced from N8.42 trillion to N5.84 trillion, suggesting a 31% reduction in oil revenue in 2020. In the same vein, the country's exchange rate depreciated from N305 to N360 due to the devaluation of the official exchange rate by the Central Bank of Nigeria (CBN), while Nigeria's economic growth nosedived from 2.5% in December 2019 to -6.1% in the second quarter of 2020 (Ojeyinka & Yinusa, 2021). Consequently, a fall in oil price has multiple effects on the fiscal position of the country and major economic indicators such as exchange rate, inflation, and economic growth, most significantly, on the stock market (Wang, Umar, Afshan, & Haouas, 2022).…”

Nigeria-Imf Relationship and Its Impact on Human Rights and Standard of Living in Nigeria

“…The decision of the Nigerian government to withdraw from IMF programs was a promising move that would not last amid pressure from the economic powerhouses (Pierce, 2006;Watts, 2009). However, the IMF has had a great deal of influence over the Nigerian government, although the government has maintained that it owes its first allegiance to its own people rather than to the IFIs (Titus Ayobami Ojeyinka & Yinusa, 2020). An outline of Nigeria's colonial and post-colonial economies would therefore be very useful in understanding the complexities of the relationship between the International Monetary Fund and Nigeria (Pierce, 2006).…”

The Dance of Two Instruments: How Fiscal and Monetary Policy Interact in Nigeria

“…[1,2]. Government uses those policies to achieve goals such as price and production stability, economic expansion, high employment rates, general economic development, and a guarantee fair distribution of wealth and income [3,4].To accomplish these goals and protect their economies from unforeseen external shocks, the Nigeria government in particular relies on those policies as two main stabilisation tools to encourage steady macroeconomic performance [2,5].…”