Fuel subsidy removal and macroeconomic performance in Nigeria: A Vector Error Correction Model (VECM) approach
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Abstract
This study investigates the impact of fuel subsidy removal on macroeconomic performance in Nigeria between 1990-2024. This research paper employed secondary data on specified variables in Nigeria that is, time series data was used for the study. The data was collected from National Bureau of Statistics (NBS) reports, Central Bank of Nigeria (CBN) statistical bulletins, International Monetary Fund publications, Nigeria Ministry of Finance, World Bank Development Indicators. Vector Error Correction Model (VECM) was employed in analyzing the data collected using Econometrics views (E-views) as the tool. The estimation further encompasses of unit root test (Augmented Dickey Fuller (ADF) test) and Johansen cointegration test accompanied by related post-diagnostic test. The ADF revealed that most of the variables are stationery at first difference and only fuel subsidy removal is stationery at level and the cointegration test confirmed a long run relationship which drove the use of VECM. The result of the study noted that fuel subsidy removal has a short run impact on economic growth and long run impact on inflation rate, unemployment rate, and economic growth while exchange rate remained unaffected. The study recommends that post-subsidy monetary policy should prioritize inflation management because it has a lasting effect on GDP and the government should make job creation top priority because unemployment and GDP have a substantial negative link.
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References
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