EFFECT OF FOREIGN EXCHANGE RATE MOVEMENTS ON OIL & GAS SECTOR OUTPUT IN NIGERIA

Abstract

This study examined the effect of foreign exchange rate movements on oil and gas sector output in Nigeria. The data for the variables were collected from the various issues of CBN statistical bulletin from 2010M01-2024M12. The variables for the study are real exchange rate movements, oil and gas sector output, interest rate, balance of payment and inflation rate. The ARDL Co-integration procedure coupled with ARCH and GARCH were used in estimating the data. The result showed that foreign exchange rate movements and balance of payment exhibited a positive but insignificant (Prob. > 0.05) effect on oil and gas output, interest rate and external reserve showed a significant (Prob. < 0.05) positive effect, while inflation rate revealed a significant negative effect on oil and gas output, in Nigeria. The response of the oil and gas sector output to a foreign exchange rate movement showed that the oil and gas sector does not exhibit strong short-term sensitivity to foreign exchange rate movement. Base on this, it is recommended that the Nigerian government should adopt policies aimed at stabilizing the foreign exchange rate to reduce the fluctuations that harms the oil and gas sector of the economy. This could be tackled by creating a more diversified foreign exchange market to reduce dependency on oil revenues.