Crude Oil Price Volatility and its Impact on Nigeria’s Balance of Trade: An Empirical Assessment (2000–2023)

This study investigates the impact of crude oil price volatility on Nigeria’s balance of trade from 2000 to 2023, incorporating the Consumer Price Index (CPI) as a moderating variable to capture inflationary dynamics. Using quarterly time-series data, the study explores both the direct effect of oil price volatility and the moderating influence of domestic price levels on trade performance. Preliminary tests confirm stationarity of the variables at I(1), allowing for the application of a cointegrating regression framework. Although the initial econometric model satisfied all diagnostic tests— including serial correlation, heteroskedasticity, and stability tests, the residuals failed the normality assumption. Consequently, the Dynamic Ordinary Least Squares (DOLS) technique was employed to obtain robust long-run estimates, given its efficiency in addressing endogeneity and serial correlation in small sample sizes. Empirical findings reveal a significant long-run relationship between crude oil price volatility and the balance of trade, with CPI playing a moderating role by amplifying the trade imbalance in periods of rising domestic prices. The study highlights the dual vulnerability of oil-dependent economies like Nigeria to both external price shocks and internal inflationary pressures. Policy implications emphasize the need for trade diversification, macroeconomic stabilization mechanisms, and inflation-targeted monetary policies to cushion the adverse effects of oil price fluctuations on trade outcomes.