Oil Export Revenue and Exchange Rate: An Investigation of Asymmetric Effects on Households’ Consumption Expenditure in Nigeria

Oil export constitutes the major source of external revenue, and exchange rate determines the naira amount of the revenue and, thus, is perceived to affect aggregate consumption expenditure in Nigeria. This paper employed Nonlinear ARDL approach to examine the short-run and long-run asymmetric effects of oil export earnings and exchange rate on aggregate consumption in Nigeria from 1981 to 2016. Variables of interest in the paper were oil export earnings (OEE), consumer price index (CPI) as proxy for inflation, nominal effective exchange rate (NEER) and final consumption expenditure (FCE). Based on bounds testing long-run cointegration among the variables was established. Furthermore, Wald test was used to establish the presence of asymmetry between FCE and OEE and NEER. Results from the study indicated that in the short-run, negative shocks to exchange rate exerted significant positive effect on consumption, and negative at a higher lag, while positive shocks to exchange rate exerted negative effect on consumption. Still in the short-run, negative shocks until the first lag exerted a negative and significant effect on consumption; at lag two, the effect became positive and insignificant. In the long-run, positive and negative shocks to both exchange rate and oil export earnings exerted both positive and significant effects on consumption.