ATTENTION:
BEFORE YOU READ THE CHAPTER ONE OF THE
PROJECT TOPIC BELOW, PLEASE READ THE INFORMATION BELOW.THANK YOU!
INFORMATION:
YOU CAN GET THE COMPLETE PROJECT OF THE
TOPIC BELOW. THE FULL PROJECT COSTS N5,000 ONLY. THE FULL INFORMATION ON HOW TO
PAY AND GET THE COMPLETE PROJECT IS AT THE BOTTOM OF THIS PAGE. OR YOU CAN
CALL: 08068231953, 08168759420
The Impact
Of Oil Price Changes On Government Expenditure In Nigeria
ABSTRACT
Change in
oil prices has been occurring since the end of the Second World War. Nowadays,
the rate of changes (up and down) in oil price is more pronounced. This has
made serious impact on Nigeria as a country practicing a mono cultural economy.
This work thus examines the impact of oil price changes on government
expenditure in Nigeria (1979–2008), a period of 30 years. Using the Classical
Linear Regression Model (CLRM) through an OLS estimator, the impact of oil
price changes on government expenditure and investment in Nigeria was examined.
In the two models, all variables were in log form. The result shows that
changes in oil price has no significant impact on the two macroeconomic
indicators (government expenditure and investment) used in this study. From the
regression result, oil prices have negative relationship with government
expenditure and positive relationship with investment. In order to explain the
three key variables (oil price, government expenditure and investment) employed
in this study, the researcher discovered that a unit change in oil prices
reduces government expenditure by 0.12948 units and increases investment by
0.11368 units. Thus, the need to diversify the economy is the paramount issue,
so as to awaken the two macroeconomic indicators (government expenditure and
investment) used in this study. Nigerian policy makers are being advised to
save more when oil price increases so as to assist developmental expenditures
and also to encourage investment when oil price falls.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
It has been
proved by various countries (especially developing countries) that government
expenditure in one way or the other has contributed a large quota on economic
growth and development. Thus, government expenditure is the sole duty or
responsibility of any country practicing mixed or socialist economic system.
Crude oil is
a publicly traded commodity, its price is determined in the commodity market
through the interaction of demand and supply worldwide and it constantly
fluctuates. Changes in the price of crude oil force government to adjust its
expenditures in line with such changes. This creates a dilemma especially for
development or capital expenditures because they are entirely financed by oil
revenues.
Oil was
first discovered in commercial quantities in Nigeria in 1956 at Oloibiri in
Niger-Delta, while actual production started in 1958. Since the discovery of
oil in commercial quantities in Nigeria, oil has dominated the economy of the
country. In Nigeria, oil accounts for more than 90% of its export, 25% of its
Gross Domestic Product (GDP), and 80% of its government total revenue (Gunu U.
and Kilishi A. A., 2010). Thus, a small oil price change can have a large
impact on the economy. For instance a US$1 increase in the oil price in the
early 1990s increased Nigerians foreign
exchange earnings by about US$650 million (2 percent of GDP) and its government
revenue by US$320 million a year (Gunu U. and Kilishi A. A. 2010).
Oil is an
important commodity in the economy of any country in the world because it is a
major source of energy for domestic and industrial uses. Oil therefore serves
as an intermediate product and as well as consumers commodity. There are
different end products of oil: these include kerosene, diesel, gasoline and
other changes in the prices of either the crude oil or any of the end products
are expected to have impact on users and at large.
Oil prices
traditionally have been more volatile than many other commodity or asset prices
since World War II. The trend of demand and supply in the global economy
coupled with activities of OPEC consistently affects the price of oil. The
recent changes in oil price in the global economy are so rapid and
unprecedented. This is partly due to increased demand of oil by China and
India. However, the recent global economic meltdown of 2008 suddenly
counteracted the skyrocketing oil price. At the beginning of the crisis, oil
price crashed below US$40 per barrel in the world market which had serious
consequences on Nigerian fiscal budget which led to the downward review of the
budget oil benchmark price. Today oil price is oscillating between US$60 per
barrel and US$75 per barrel.
The massive
increase in oil revenue as an aftermath of the Middle-East war of 1973 created
unprecedented, unexpected and unplanned wealth for Nigeria. This began the
dramatic shift of policies from a holistic approach to benchmarking them
against the state of the oil sector.
Now, in
order to make the business environment conducive for new investment, the
government began investing (government expenditure) on the newfound wealth in
socio-economic infrastructure across the country especially in the urban areas.
As well, the services sector grew. The relative attractiveness of the urban
centres made many able-bodied Nigerians to migrate from the hinterland,
abandoning their farmlands for the cities and hoping to partake in the growing
and prosperous (oil driven) urban economy. This created social problems of
congestion, pollution, unemployment and crimes (Adeibe, B. 2004).
1.2 STATEMENT OF THE PROBLEM
The strength
of the Naira to US Dollar in 1985 made Nigeria an import- oriented consumption
habit that soon turned her into a perennial net importer, this turned out a
major problem when oil revenue decreased alongside with international oil
prices. External reserves collapsed, fiscal deficit mounted and external
borrowing increased in order to finance the deficit. This led to the
unstableness of the macroeconomic indicators in Nigeria.
Researchers
like; Olomola (2006) reveals that oil price changes has an impact on real
imports and government expenditure in Nigeria. Eltony and Al-Awadi (2001), in a
study on Kuwait (one of the oil producing nations), also reveals the importance
of oil price changes on government expenditure. While a study undertaken by
Anashasy, (2005) in Venezuela (the highest oil producing country under OPEC)
reveals a long-run relationship between oil price volatility rate and government
expenditure.
Researchers
like Olusegun O.A, (2008); Christopher A. and Benedict, G (2008) did not
discover any significant impact on government expenditure in Nigeria, while
Mammad B. (2010) did not discover any significant impact of oil price changes
on real government expenditure in Azerbaijan.
The
resulting dramatic increase in oil earning made Nigeria to delude itself by
confusing wealth with income hence the euphoria and the oil wealth syndrome
(Anyanwu 1990). The rapid monetization of her oil earnings led to a spending
spree, leading to high import consumption, huge budget deficit (excess of
expenditure over revenue), excess money supply and external debt overhang. It
is no wonder that like other oil exporting developing nations that experienced oil
boom, Nigeria caught the ‘‘Dutch Disease’’ – a situation where high but
temporary oil revenue has adversely affected the non-oil traded goods sector, thus delaying the learning by
doing experience that would improve its comparative advantage (or lessen its
comparative disadvantage) in the production of manufactured goods. Thus oil
revenue increases (increase in income from oil export), has turned Nigeria into
a mono-cultural economy (depending solely on oil proceeds). This has made our
economy undiversified, thereby leading to the neglect of investing in other
vibrant sectors of the economy, mainly the agricultural sector.
Increases
and decreases in oil prices, causes changes in government revenue and
subsequently government expenditure. The table below shows a ten year time
interval from 1979 to 2006 drawn in order to exhibit the inter-relationship
between three important variables as regards to the research work such as; the
price of oil, oil revenue and government expenditure. This is to provide support
for the research question.
Table 1: Oil
price, oil revenue and government expenditure
YEAR
OIL PRICE
US$ PER BARREL
OIL REVENUE
(₦ MILLION)
GOVERNMENT
EXPENDITURE (₦ MILLION)
1979
33.4
8880.8
7406.7
1982
35.6
7814.9
11923.2
1985
28.2
10923.7
13041.1
1988
15.1
19831.7
27749.5
1991
20.5
82666.4
66584.4
1994
16.2
160192.4
160893.2
1997
19.5
416811.1
428215.2
2000
26.1
1591675.9
701059.4
2003
29.1
2074280
1225965.4
2006
66.5
5287546.9
1938002.5
SOURCE: CBN
Statistical Bulletin (2008).
Going by the
above table (Table 1), we can confidently say that in Nigeria or generally
worldwide for oil producing countries, oil contributes a huge sum of revenue to
the coffers of the government, which forms a significance portion of its
expenditure (government expenditure). But a brief analysis of the table above,
shows that the period 1985 – 1997, witnessed a down turn in the price of oil
per barrel as US$28.8 and US$19.5 respectively, while the price started rising
again from the year 2000 which is US$26.1 per barrel. Evidently, oil revenue
and government expenditure is said to have risen proportionately with the rise
in oil price in the year 2000 as in ₦1591675.9 million and ₦701059.4 million
respectively. In the light of the foregoing analysis the research work was
guided by the following questions.
1. What is the impact of oil price
changes on government expenditure in Nigeria?
2. What is also the impact of oil
price changes on investment in Nigeria?
1.3 OBJECTIVE OF THE STUDY
Going by the
research questions stated at the previous section of this chapter, the specific
objectives of this research include the following;
1. To econometrically investigate the
impact of oil price changes on government expenditure in Nigeria.
2. To econometrically investigate the
impact of oil price changes on investment in Nigeria.
1.4 HYPOTHESIS OF THE STUDY
The research
work involves two models and the hypotheses tested are;
1. The changes in oil price, has no
significant impact on government expenditure in Nigeria.
2. The changes in oil price, has no
significant impact on investment in Nigeria.
1.5 SIGNIFICANCE OF THE STUDY
According to
Olomola (2006), who used quarterly data from 1970 to 2003 using VAR model,
changes in oil price does not affect output significantly in Nigeria. Adding
some variables into his model (VAR model) such as; government expenditure and
real imports, the encompassed model further revealed that changes in oil price
do have implications for imports and government expenditure.
The study on
the effect of oil price changes on Venezuela’s economic performance undertaken
by Anashasy, (2005), using VAR and VECM technique revealed a long run
relationship of oil prices and government expenditure
On the
contrary, Olusegun O.A, (2008), Christopher A. and Benedict, G. (2006) who
based their analysis in Nigeria, using VAR model, did not find any
significant impact of oil price changes
on government expenditure in Nigeria, while Mammad B, (2010) did not discover
any significant impact of oil price changes on government expenditure in
Azerbaijan.
Going by
Olomola whose analysis was based in Nigeria, this research work tried to cover
the gap from 2003 to 2008 (5 years gap) which would be achieved through the use
of OLS (Ordinary Least Square) methodology as a result of the merits derived by
it. Also in the analysis, a yearly time series data from 1979 to 2008 would be
used to reduce complexity. The 5 year period in which this study is closing
would show if there is any difference in the result obtained.
Here is a
baseline research on the impact of oil price changes on government expenditure
in Nigeria, so as to add to the existing stock of knowledge.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
The scope of
this research study on the impact of oil price changes on government
expenditure in Nigeria covers 1979 to 2008 (a period of 30 years). This is to
ensure, updated information and to follow trend.
A major
limitation encountered in the cause of this study is incompleteness of data
(oil prices per barrel of 2007 and 2008) from the CBN statistical bulletin
2007. The researcher tried also to assess the CBN statistical bulletin of 2008
and 2009, but was unable to see the data (of oil price per barrel) at all. He
therefore resorts to assessing the internet for the missing figures of 2007 and
2008.
HOW TO GET THE FULL PROJECT WORK
PLEASE, print the following instructions and information if you
will like to order/buy our complete written material(s).
HOW TO RECEIVE PROJECT MATERIAL(S)
After paying the appropriate amount (#5,000) into our bank
Account below, send the following information to
08068231953 or 08168759420
(1) Your project topics
(2) Email Address
(3) Payment Name
(4) Teller Number
We will send your material(s) after we receive bank alert
BANK ACCOUNTS
Account Name: AMUTAH DANIEL CHUKWUDI
Account Number: 0046579864
Bank: GTBank.
OR
Account Name: AMUTAH DANIEL CHUKWUDI
Account Number: 2023350498
Bank: UBA.
FOR MORE INFORMATION, CALL:
08068231953 or 08168759420
AFFILIATE LINKS:
myeasyproject.com.ng
easyprojectmaterials.com
easyprojectmaterials.net.ng
easyprojectsmaterials.net.ng
easyprojectsmaterial.net.ng
easyprojectmaterial.net.ng
projectmaterials.com.ng
googleprojectsng.blogspot.com
myprojectsng.blogspot.com.ng
https://projectmaterialsng.blogspot.com.ng/
Comments
Post a Comment