EFFECT OF EXTERNAL SHOCKS ON MACROECONOMIC STABILITY IN NIGERIA

Authors: Topbie, Joseph Akeerebari, Abah Michael Peters & Lasisi, Olapade Kehinde

ABSTRACT

The study of the effect of external shocks on macroeconomic stability was examined in Nigeria over the period 1994–2024. The study primary objective was to examine both the long-run equilibrium relationship and short-run dynamics between Real GDP growth rate (RGDPGR) and key external shock variables: oil price (OIL-P), external debt (EXDT), exchange rate (EXR), and trade openness (TROP). Macroeconomic stability was disaggregated to capture real GDP growth rate (RGDPGR) and inflation rate (INFLR), which were used as dependent variables. Real GDP growth rate (RGDPGR) was used to regress against external shock variables- oil price (OIL-P), external debt (EXDT), exchange rate (EXR) and trade openness (TROP). Inflation rate (INFLR) was also used to regress against these external shock variables. The study utilized annual time-series data obtained from reliable secondary sources, including the Central Bank of Nigeria (CBN), National Bureau of Statistics (NBS), World Bank, and international commodity databases for oil prices. The Autoregressive Distributed Lag (ARDL) approach and Granger Causality test were employed for data analysis. The findings confirmed a stable long-run co-integrating relationship among the variables. In both short-run and long-run, external debt indicated strong significant and positive influence on RGDPGR, while exchange rate depreciation exerts a negative effect on RGDPGR. The result further demonstrated strong significant and positive impacts from oil price and trade openness, in the short-run. But, in the long-run, oil price shock and trade openness exposure exerted insignificant effect on RGDPGR. More so, the result of Granger Causality test showed no significant Granger causality from any of the external shock variables to inflation rate. The study concluded that external shocks significantly drive short-run macroeconomic volatility in Nigeria but coexist with a resilient long-run equilibrium. It recommended accelerated economic diversification away from oil dependence, prudent external debt management, exchange rate stabilization through reserves accumulation, and enhanced trade integration to strengthen shock resilience and sustain long-term growth.

Keywords: External Shocks, Macroeconomic Stability, Real GDP growth rate, Inflation rate, ARDL model, Granger Causality

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