External Sector Shocks and Macroeconomic Stability in Nigeria

Abstract

This study investigated the effect of external sector shocks on macroeconomic stability in Nigeria over the period 1990 to 2025. Oil Price, Exchange Rate Volatility, and Remittance were used to proxy external sector shocks while Gross Domestic Product was used as a stand-in for macroeconomic stability. Data were obtained from the World Banks World Development Indicator (WDI), and Central Bank of Nigeria (CBN) statistical Bulletin 2025. The study employed the Augmented Dickey Fuller unit root approach to ascertain if the variables are stationarity or not. Based on the outcome, it was revealed that some of the variables were stationarity at level, i(o), while others became stationary after firs differencing (i(1). On this basis, the study adopted the Auto-regressive Distributive Lag (ARDL) bound test to determine long-run relationship between the variables. The result from the bound test showed that foreign reserve accumulation is correlated with balance g payment in the long-run. Further findings revealed that oil price and exchange rate volatility have a positive and significant relationship with stock market capitalization while remittance received had a negative and insignificant relationship with stock market capitalization. Hence, it was concluded that external sector shock had a considerable impact on stock market capitalization in Nigeria. It was therefore, recommended amongst other that the Nigerian National Petroleum Company Limited and the Federal Ministry of Petroleum Resources should intensify efforts toward stabilizing and expanding crude oil production through improved investment in the petroleum sector, reduction of pipeline vandalism, and enhancement of refining capacity.