A business cycle model for Nigeria

The current global financial meltdown draws, once again, attention to the existence of business cycle fluctuations. Experts are of the view that the ongoing crisis is far deeper than the great depression of the 1930s. It should be recalled that the Keynes and Keynesianism was a response to that depression. Therefore, the objective of this paper is to develop a small business cycle model in the spirit of Dynamic Stochastic General Equilibrium (DSGE) model for Nigeria designed to examine the sources of business cycles, and use the model for policy analysis. This paper considers the implications of three policy shocks namely: monetary supply, technology and export supply on some macroeconomic aggregates. While the paper adopts the Nason and Cogley (1994) and Schorfheide (2000) models, it, however, introduces export sector into the model with a view to capturing the transmission channel of terms of trade. The method of estimation is the Bayesian and the paper uses DYNARE codes (dyn_mat_v4). The results obtained in this study show that the Nigerian business cycle is driven by both real and nominal shocks

FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN ECOWAS: A SYSTEM-GMM APPROACH

The paper investigates the relationship between foreign direct investment and economic growth in ECOWAS using the System-GMM panel estimation technique covering the period 1970-2011.The study adopted System-GMM in order to overcome the weaknesses perceived in the empirical works of earlier studies; majority of these studies failed to control for the presumed challenges of endogeneity inherent in the FDI -Growth argument. The study likewise interacted human capital and institutions indicators with other explanatory variables in explaining the variability of FDI. The results of the System-GMM appears contrary to earlier studies, as the contribution of FDI was insignificant and impacts negatively on growth in ECOWAS despite the controlling for the role of human capital and quality of institutions in the model. Following this outcome, policy makers in developing Africa needs to exercise cautions in adopting the recommendation from earlier studies; most of which advocates more openness, human capital development and the strengthening of institutions. This might not be completely helpful considering the pattern of FDI inflow into ECOWAS, which is absolutely resourceseeking. There is need to curtail excessive openness in the extractive industries, encouraging more manufacturing FDI and domestic investment of repatriated capital by ensuring more economic stability and raising domestic interest rate

Oil Price Volatility and Renewable Energy Consumption in Nigeria

Oil price volatility is argued to be one of the incentives behind the rising prominence of renewable energy as a strategy to minimize oil dependence. Therefore, this study seeks to examine the impact of oil price volatility on renewable energy consumption in Nigeria from 1986-2017. A Vector Error Correction Model (VECM) was employed to achieve this objective. The variables were confirmed to exhibit a long run association. A unidirectional causality was also observed running from renewable energy consumption to oil price volatility. The impulse response function test shows that renewable energy consumption is positively influenced by oil price volatility in Nigeria. The variance decomposition result shows that real GDP causes the largest variation in renewable energy consumption amongst all the variables employed. The study recommends that public policies should be put in place to create awareness about the importance of the renewable energy sector and its potentials to lower health cost, mitigate climate change and helps Nigeria to attain energy security in the long run.Keywords: Oil Price Volatility, Renewable Energy Consumption, Vector Error Correction Model, NigeriaJEL Classifications: K32, P18, Q28DOI: https://doi.org/10.32479/ijeep.9376</p

A Simulation of the Removal of Fuel Subsidy and the Performance of the Agricultural Sector in Nigeria using a Dynamic Computable General Equilibrium Approach

This study analysed the response of the agricultural sector to the removal of subsidy on refined petroleum in Nigeria, given its strategic role as a critical sector. Using a dynamic energy-environment CGE model based on the 2006 Nigerian Social Accounting Matrix (SAM), the study presents the results of the response of the agricultural sector to three different simulation scenarios. These include a partial (50 percent), gradual and a one shot (complete) removal of subsidy on imported refined oil in Nigeria. The results provided evidence that a complete or one shot removal of fuel subsidy is more favourable in terms of better performance of the agricultural sector as many of the key macroeconomic variables increased under the complete removal simulation scenario. It is recommended that a one shot removal of fuel subsidy will strengthen the agricultural sector performance and outputs, even though prices will move up in the short term. The long term benefits to the sector when funds are allocated to infrastructural and technological development will support overall growth and enhance food security in Nigeria. Â

Energy Pricing Policy and Environmental Quality in Nigeria: A Dynamic CGE Approach

The fuel subsidy policy as a policy had been argued to hamper efforts at environmental sustainability. Thus, this study investigates the extent to which the removal of fuel subsidy influences the level of carbon emissions in Nigeria over a 5 year period. It adopts the recursive dynamic version of the PEP Computable General Equilibrium (CGE) model based on the 2006 Nigerian Social Accounting Matrix (SAM). Simulating a partial, gradual and complete removal of import tariff on imported petrol indicates reduction of emissions only when subsidy removal was partial. Findings from the results showed carbon emissions marginally increased under the gradual and one shot removal. This suggests that removing petrol subsidy was not sufficient to reduce carbon emissions level, but should be accompanied with necessary supporting policies. Fuel blending can be a useful alternative to fossil fuel along with renewable energy and green growth practices to ensure a low-carbon growth strategy. Keywords: Energy policy, Environmental Quality, Dynamic CGE JEL Classifications: C68, Q43, Q5

Fuel Subsidy Reform and Environmental Quality in Nigeria

The study examines the existence of a long run effect of fuel subsidy reform on environmental quality in Nigeria for the period of 1970-2012 using the Johansen and the Engle-Granger two step co-integration procedure techniques. The study developed a three case scenarios including i) a case of subsidy payment, ii) a case of effective subsidy and, iii) a case of no subsidy payment. Findings from the study supported evidence of a long run sustainable equilibrium model. Also, our estimation results showed that the first and the last case scenario do not significantly influence environmental quality. This implies that subsidy payment in Nigeria does not enhance access and consumption of liquid fuel. On the other hand, the interaction of sound regulatory framework with subsidy payment (the case of effective subsidy) significantly exerts a responsive influence on environmental quality. Keywords: Subsidy Reform; Environmental Quality; Climate Change; Johansen Cointegration JEL Classifications: H23; Q51; Q5

Carbon Emissions and the Business Cycle in Nigeria

Investigating the behaviour of carbon dioxide emissions to different macroeconomic variables has become critical in the recent years in environmental policy. In fact, a number of studies have continued to analyse different possible determinants of carbon emissions. However, very little attention has been given to relating Real Business Cycles (RBCs) to carbon emissions in Nigeria. Thus, the main objectives of the study are; first, to document some stylised facts between the cyclical components of carbon emissions and Gross Domestic Product (GDP) including also the relationship with two major components of GDP that have been credited to be a major sources of emissions (agricultural sector and the industrial sector) through the use of the Hodrick-Prescott filter. Secondly, to investigate the response of emissions to real shocks using the Structural Vector Autoregressive (SVAR) approach. The study is able to find out that emissions are countercyclical to output, however, a pro-cyclical relationship is established with the agricultural and industrial sector. Real business cycle shocks are seen to have a positive effect on carbon emissions in Nigeria. The study, therefore, recommends the implementation of environmental policies targeted towards the agricultural and industrial sector given the pro-cyclical relationship obtained from the analysis. Keywords: Carbon emissions, Environmental policy, Business cycles JEL Classifications: Q56, Q58, E3