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Fuel Prices, Subsidy Removal and Macroeconomic Performance in Nigeria: A Toda–Yamamoto Analysis

Leera Kpagih corresponding author PhD, Miss Gift Ichenwo

Abstract

This study investigates the causal relationship between Premium Motor Spirit prices and key macroeconomic performance indicators in Nigeria (inflation, unemployment, poverty, and Human Development Index) using the Toda-Yamamoto modified causality approach within an augmented VAR (k+dmax) framework. Drawing on annual time-series data from 1990 to 2023, sourced from the National Bureau of Statistics , Central Bank of Nigeria , and the World bank World Development Indicators, the analysis incorporates preliminary diagnostics such as Augmented Dickey-Fuller unit root tests, Johansen cointegration testing, toda-yamamoto causality test, and different post estimation tests such as serial correlation, heteroskedasticity, and normality tests. The empirical results reveal a bidirectional causality between PMS prices and unemployment at the 5% significance level, indicating a mutual feedback mechanism where elevated fuel costs raise production expenses and reduce jobs, while unemployment curbs fuel demand. No causality exists with inflation, indicating it is driven mainly by exchange rates and monetary factors. Uni directional causality runs from PMS prices to poverty and HDI highlighting adverse welfare and human development effects through increased cost of living and social investments. The paper recommends that phased; targeted social protection, energy diversification and local refining, and human capital investment policies be engaged by the Nigerian government to enable economic growth.

References

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