Oil Price Fluctuations and its Impact on Current Account in Nigeria

Abstract:

This study investigates the relationship between oil price fluctuations and Nigeria’s current account balances from 1987 to 2021. Current account is a pivotal macroeconomic variable that is used to measure the economic performance of a country. This current account is itself a record of all of a country’s national and international transactions and oil price is one of the major factors that determines the value and volume of transactional movements in a country. This is largely the case with Nigeria, which is a country that is heavily reliant on oil. This study adopted a time series analysis by investigating time series data and the Autoregressive Distributed Lag (ARDL) was used to estimate the correlation between oil price variations and current account in the short and long runs. The findings showed that oil price had a positive but insignificant effect on current account in the short run while it had a negative but significant impact on the current account in the long run. In terms of the other determinants of current account which were examined in this study, it was discovered that population growth rate and trade had an insignificant correlation with current account balances in the short run while GDP and oil prices had significant impacts on current account balances in the long run. These findings inform the conclusion of this study that current account is a viable metric for measuring Nigeria’s economic performance as well as policy making. To gain greater economic stability, this study recommended that there is a need to strategically position Nigeria’s economy towards other forms of revenue rather than oil so as to reduce the impact of oil price fluctuations on the country’s current account balances and the economy at large.