Macroeconomic and distributional consequences of energy supply shocks in Nigeria
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Date
2006-11-04
Authors
Adenikinju, Adeola F.
Falobi, Niyi
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research consortium
Abstract
In spite of its vast oil endowments, Nigeria continues to experience sporadic domestic
oil supply shortages. These oil shortages manifest in regular queues at fuel stations that
are often empty and in thriving parallel markets that sprout all over the country. The
shortages have resulted in huge economic and non-economic costs to the economy. This
study investigates the causes of the shortages and provides quantitative estimates of the
economic costs to the Nigerian economy using a survey and a computable general
equilibrium (CGE) model. The findings from this study show very clearly that oil sector
supply shocks are costly both directly and indirectly. Oil supply shocks result in lower
real GDP, higher average prices and greater balance of payment deficits. Other
macroeconomic variables such as private consumption, investment, government revenue
and employment also decline. In addition, the distributional impact of the quantitative
energy supply shocks is higher for poor households than rich households. We also find
that the sectoral impacts are mixed, often depending on the oil intensity of the sector.
Finally, our survey results show that many economic agents on the demand side are
willing to pay higher prices if that will guarantee a stable oil supply. Few players in the
market chain benefit from supply disruptions, while consumers and the poor bear the
main burden of these shocks.