The impact of domestic pricing of petrol on economic growth of Nigeria (1970 – 2013)

Abstract

The study investigated the impact of Premium Motor Spirit (PMS) Price on the growth of Nigerian economy as well as the effect of gross domestic investment (GDI), labour employment (LEMP) and lending interest rate (LIR) between 1970 and 2013 on economic growth of Nigeria. The study focused on PMS pricing due to government foot dragging on the deregulation of PMS Price in Nigeria. For this study, secondary data were obtained from Statistical fact sheets of National Bureau of Statistics (NBS) and Central Bank of Nigeria (CBN) publications. Using the Error Correction Mechanism approach, the study reveals that increase in PMS Price had a negative significant impact on the Nigerian economy (Real GDP) at 5% level of significance. This indicates that 1% rise in PMS price of one year lag leads to 0.7% decrease in Real GDP. That is, increase in energy (PMS) price will negatively impact on the production of the firms, individuals (household) or Government Institutions, which will consequently lead to a fall in real GDP. GDI indicated a positive and significant impact on Real GDP at 5% level of significance, indicating that 1% rise in GDI of one year lag will lead to 8.5% rise in Real GDP. LEMP of one year lag showed a positive and significant impact on Real GDP at 5% level of significance, suggesting that 1% rise in LEMP will lead to 2% increase in Real GDP. Also, LIR of two and three-year lags indicated a negative and significant impact on Real GDP at 5% level of significance, implying that any percentage rise in LIR will lead to a corresponding percentage decrease in Real GDP. Based on the findings, the study concludes that PMS price, GDI, LEMP and LIR are drivers of RGDP in Nigeria.

Hence, the study recommends that government should reduce the PMS pump price by deregulating PMS and encourage the private sector to participate actively in the downstream of the petroleum sector in order to create competition in the sector, thereby tackling the continuous rise in PMS pump Price.

Keywords: PMS pump Price, petroleum Product, Deregulation, Gross Domestic Product, Error Correction Model