Proceedings of 6th Annual American Business Research Conference
9 - 10 June 2014, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-52-8
Deregulating the Downstream Oil Market in Nigeria:
Macroeconomic Issues, Problems and Prospects
Sabiu Bariki Sani
Deregulating the downstream oil sector through gradual subsidy withdrawal has generated heated
debate in Nigeria with the government claiming that it will guarantee long term stability in product
supply and price. This will translate into economic growth and development. Others, especially the
organised labour, claims that deregulation will lead to inflation, higher cost of production, and cut of
jobs and will bring economic recession. Therefore, this paper employs Vector Auto regression Model
using Variance Decomposition, Impulse Response Function and Granger Causality tests to assess
the effect of deregulation of downstream oil sector on four macroeconomic variables which are; GDP,
Inflation, Unemployment and Minimum wage. The data used is time series data covering the period
1980 to 2012. The paper finds evidence that changes in oil price due to deregulation is the major
source of variation in GDP, Inflation and Unemployment, while it is not found to be a significant
source of variation in minimum wage. The result also reveals that there is positive impact of oil price
changes on GDP and Inflation but negative impact on Unemployment and Minimum wage in the
short run which became positive in the long run. Finally the Granger causality test indicates
unidirectional causality running from Petroleum prices to GDP and from Inflation to Petroleum prices
while there is no evidence of causality on Minimum wage and Unemployment. The paper suggests
that countries wishing to deregulate their downstream oil sectors should evolve policies that will
protect jobs and increase wages in order to compensate the fall in real wage and mitigate recession
that could occur as a result of fall in purchasing power.
Field of Research: Macroeconomics, Downstream Oil Market, Nigerian Oil Sector
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Mr, Sabiu Bariki Sani, Dundee Business School, University of Abertay Dundee, DD1 1HG, +44(0)7741039357,
1005275@live.abertay.ac.uk