Impact of Petroleum Prices on Economic Growth in Nigeria

ABSTRACT

The study examined the impact of petroleum prices on economic growth in Nigeria. This study used annual time series data ranging from 2000 to 2024, obtained from the Central Bank of Nigeria (CBN) statistical bulletin. The variables in the model include economic growth as the dependent variable while premium motor spirit prices (PMSP), automotive gas oil prices (AGOP) and Liquefied Petroleum Gas (LNG), as the explanatory variables. The study employed autoregressive distributed lag (ARDL) model to analyze the time series data. It was found that Premium Motor Spirit (PMS) prices have a positive but statistically insignificant effect, suggesting that fluctuations in PMS costs do not substantially influence output, likely due to firms’ ability to absorb price changes or rely on other inputs. Automotive Gas Oil (AGO) prices have a negative and significant impact, showing that higher diesel costs reduce economic growth, highlighting the need for price stabilization or support measures for firms reliant on AGO. Dual Purpose Kerosene (DPK) prices exhibit a positive and significant relationship with output, indicating that some firms adapt to higher costs through energy substitution or efficiency improvements. The significant constant term suggests that structural factors such as infrastructure, technology, labor productivity, and access to finance also play a critical role in determining economic growth. The study recommends that since PMS prices have a positive but insignificant impact on economic growth, policymakers can consider gradual subsidy rationalization or price adjustments while ensuring that industries and households are not adversely affected. Measures to improve fuel supply reliability and promote alternative energy sources could also help firms manage costs efficiently. Given the negative and significant impact of AGO prices on economic growth, the government should implement strategies to stabilize diesel prices or provide targeted support to firms that rely heavily on AGO, such as temporary subsidies, tax incentives, or access to affordable alternative fuels, to prevent reductions in industrial productivity. Because LNG prices positively and significantly affect economic growth, policies should encourage energy efficiency and flexible fuel usage. Supporting firms with access to alternative fuels and energy-saving technologies can enhance their resilience and optimize production despite fuel price fluctuations.