EFFECTS OF FUEL SUBSIDY REMOVAL ON ECONOMIC GROWTH IN NIGERIA

Abstract

Nigeria has for more than three decades now suffered both economic and social stagnation majorly attributed to mismanagement of her economic resources. This study, effects of fuel subsidy removal on Economic Growth in Nigeria sought to: examine the effect of exchange rate on economic growth in Nigeria, to investigate the effect of fuel price differential on economic growth in Nigeria and to determine the effect of inflation rate on economic growth in Nigeria. The findings shows thatexchange rate, fuel price differential and inflation rate, using an Autoregressive Distributed Lag (ARDL) model, the empirical results provide strong evidence of a significant negative relationship between these variables and real Gross Domestic Product (GDP) in both the short and long run. The study found a negative and significant long-run effect of the fuel price differential on economic growth. This indicates that the subsidy, which creates an artificial price gap, has historically acted as a drag on long-term economic expansion. Conversely, its removal, leading to a higher price, negatively impacts economic growth by increasing production costs and reducing consumer purchasing power. The results revealed a negative and significant effect of the inflation rate on Nigeria's economic growth. This confirms that the inflationary pressures unleashed by the subsidy removal (driven primarily by higher transportation and energy costs) have severely eroded the value of money, discouraged investment, and stifled economic activity. The study established a negative and significant relationship between the exchange rate and economic growth. Among other things recommends that the economic activities if managed well through coordinated economic policies will create jobs and ensure more infrastructural development in Nigeria.