The Dynamics of Oil Prices in the Nigerian Construction and Economic Growth

Aims: The continuous reverberation of unstable global oil price change has caused this study to examine the effect of oil price fluctuation on the construction and economic growths in Nigeria.

Study Design: Data for the analysis were extracted from different National Bureau of Statistics (NBS) publications on the construction sector and economy (GDP); and OPEC Annual Statistical Bulletin 2017 and BP Statistical Review of World Energy June 2017 on oil price from 1981 to 2016.

Place and Duration of Study: The study was done in Nigeria between October 2017 and February 2018.

Methodology: The study applied different econometric techniques including the Augmented Dickey-Fuller (ADF), the generalized least squares (GLS) regression (DF-GLS), and the Phillips-Perron (PP) for unit root test; Johansen’s cointegration test and Error Correction Model (ECM) for long-run equilibrium relationship; Granger causality test for direction of causation or influence; as well as carrying different validation tests.

Results: It was found that oil price fluctuation does not have any causal influence on the construction growth nor economic growth; rather it is only the economic growth that influences the construction growth without feedback. It further revealed the existence of unstable long-run equilibrium contemporaneous relationship between the variables. It showed that the deviation from the equilibrium level in the current year will be corrected by 8.8% in the following year and that it will take about 11 years and 4 months to restore the long-run equilibrium state on the economic growth should there be any shock from the construction growth and oil prices fluctuation in the system.

Conclusion: The study concluded that though construction sector and general economy may be sensitive to the oil price change, their growth cannot be said to have been influenced or caused by the fluctuation in oil prices. On this strength, the subsisting oil price position in determining the economic trends in Nigeria is challenged. It then calls for new thoughts and strategies towards monitoring the oil prices and economic growth in Nigeria which may culminate in paying less attention to oil price changes and focusing more on other economic variables that trigger changes in the economy and development of Nigeria.