Authors: Hambolu Victor Olufunsho & Alabi John Olatunji Ph.D.
Journal: Kogi Journal of Management
This study, therefore, examined oil price shocks and government spending in Nigeria between 1970 and 2017. While there is a growing body of literature on the macroeconomic effects of oil price volatility, little attention has been devoted to its effects on government spending. The multivariate vector Auto regression model was explored for the empirical investigation. Our findings reveal that Government spending responds positively to net, scaled, positive and negative oil price changes and the attendant shocks. Price volatility and shock effects on government expenditure response were significant for the first two years and thereafter fizzled out as the impulse responses of government spending revert to zero within six years. Thus, the effects of price volatility and shocks are transitory. Variance decomposition indicates that price volatility had no initial impact on government spending but increased to 14.9% in the medium-term (5th-10th year) and further to 15.0% in the long-run (10th year and above). Price volatility contributes less than 5.0% to the variations in other macroeconomic variables in the short-run but up to 5.5% and 5.8% in the medium-term and long-run, respectively. Oil price volatility has greater influence on the fiscal behaviour of the government than discount rate shocks. The asymmetric effects of the price volatility and shocks were insignificant.