Oil price, exchange rate fluctuations, and poverty rate in Nigeria

Abstract

The necessity to determine who benefits from growth and to determine the populace’s perception of their quality of life underscores the urgency of moving beyond GDP metrics. The overarching objective is to comprehensively evaluate the impact of oil price and exchange rate fluctuations on the pursuit of decreasing the poverty rate in an oil-exporting country, focusing on Nigeria from 1987 to 2023. Time-series data are sourced from the Central Bank of Nigeria’s statistical bulletin. Philips-Perron unit root tests indicate that the variables are integrated in a different order. The results of the co-integration test show that there is no long-run connection between pump prices for gasoline, oil rents, exchange rates, inflation rates, and the poverty gap in Nigeria. The results revealed that the official exchange rate and oil rents exert an insignificant positive effect on the poverty gap in the short run. Also, the inflation rate had a negative and significant impact on the poverty gap. Furthermore, the pump price for gasoline exerts an insignificant adverse effect on the poverty gap. Based on these findings, this study recommends that policymakers should prioritize stability in economic variables, diversify the economy, and implement targeted poverty alleviation measures. These actions can reduce poverty and foster economic resilience in Nigeria. Also, policies should focus on diversifying the economy away from oil dependence while ensuring oil revenues are effectively invested in poverty-alleviation programs, such as education, healthcare, and infrastructure development. As gasoline prices have an insignificant adverse effect on the poverty gap, subsidy reforms should be carefully designed to redirect resources toward social safety nets that more directly benefit people experiencing poverty.