“Can an Apple Fall Far from its Tree?”Macroeconomic Effects of Oil on a Net Exporting Country

41 Pages Posted: 10 May 2022

See all articles by Ahmad Hassan Ahmad

Ahmad Hassan Ahmad

Loughborough University - School of Business and Economics

Suleiman Tahir

Central Bank of Nigeria

Abstract

This paper investigates the effects of oil on macroeconomic performance of an oil-dependent country. It uses data on Nigeria's economy which has been heavily dependent on oil for over four decades. The paper uses threshold vector autoregressive (VAR) techniques, which identifies two regimes of low and high oil prices and oil revenues. The VAR analysis follows the standard open-economy literature in identifying the shocks into demand, nominal, and supply shocks. The results indicate that oil revenue shocks are the most important source of the GDP variation in the high regime while supply shocks dominate in the low regime. Government and household consumptions depict an inverse relationship which suggest that the country can benefit from countercyclical fiscal policy, especially in a situation where slump in economic activities is driven by collapse in private consumption and can be funded from a buffer that can be built during the period of high regime, especially in oil revenues created by a boom.

Keywords: Oil revenue, macroeconomic performance, Threshold VAR

Suggested Citation

Ahmad, Ahmad Hassan and Tahir, Suleiman, “Can an Apple Fall Far from its Tree?”Macroeconomic Effects of Oil on a Net Exporting Country. Available at SSRN: https://ssrn.com/abstract=4105000 or http://dx.doi.org/10.2139/ssrn.4105000

Ahmad Hassan Ahmad (Contact Author)

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

Suleiman Tahir

Central Bank of Nigeria ( email )

Plot 33, Abubakar Tafawa Balewa Way
Central Business District, Cadastral Zone
FCT, Abuja, Garki, Abuja P.M.B. 187
Nigeria

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