Energy Price Shocks and Economic Fluctuations in Nigeria: From Granger Causality Modelling.

Abstract

Energy prices play a critical role in shaping economic activity by influencing production costs, household expenditure, transportation, and overall macroeconomic stability. In Nigeria, fluctuations in the prices of diesel, kerosene, charcoal, coal, and cooking gas pose challenges to economic growth because the country relies heavily on both modern and traditional energy sources. These short-run price shifts can quickly affect inflation, production costs, and consumer welfare, underscoring the need to understand their immediate effects on economic output. This paper, therefore, examines the short-run causal relationship between domestic energy price shocks and economic growth using Granger causality modeling. The data were sourced from CBN, NBS and other reputable sources spanning from 1990 - 2026. The methodology determines whether past movements in premium motor spirit, diesel, charcoal, cooking gas, and coal prices predict short-term changes in real GDP growth. The results show no statistically significant short-run causal impact of energy prices on economic growth in Nigeria. These findings suggest that Nigeria’s economy is relatively resilient to immediate energy price shocks, possibly due to subsidies, price interventions, and the influence of broader macroeconomic factors. Hence, stabilizing short-run economic fluctuations requires more than energy price management. Key recommendations include adopting an integrated macroeconomic energy policy approach, promoting economic diversification, improving energy market monitoring, strengthening long-term energy planning, and supporting further research on sector-specific and long-term energy impacts.