Conceptual and Theoretical Discourse on Oil Price and Exchange Rate: Nigerian Economy in Perspective
Historically, oil price fluctuation began in the early 1970s and it has since its first occurrence in 1973 attracted the attentions of scholars and researchers to examine the relationship between oil price fluctuations and various macroeconomic variables like exchange rate and its volatility. However, large number of literatures concentrated on the sources of real exchange rate fluctuations in developed countries with less attentions paid to the developing economies like Nigeria; while Nigerian economy is highly susceptible to the impacts of interaction between oil price and exchange rate fluctuations. Therefore, this study contributes conceptually and theoretically to this subject of oil price and exchange rate volatility with focus on the Nigerian economy. Consequently, historical and trend analysis were adopted as methods of analysis. Admittedly, the resulting effects of global oil price fluctuations and exchange rate depreciation bears overburden effects on domestic oil price that thus affects the general price level in Nigeria. Subsequently, petroleum price subsidy regime surfaces and this significantly distorts growth of Nigerian economy through driving away of the economy from free enterprising state. In this view, this study recommends among others, the needs for an improved FOREX management measures particularly, in the time of escalating demand for foreign currency that is in agreement with trade balance for Nigeria. Importantly, rehabilitation of existing refineries aimed at fullest capacity utilizations and private-public partnership in the supply of refined petroleum products should be encouraged to limit the effect of Global oil price fluctuations on domestic petroleum product prices.
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