Chapter one

Introduction

1.1Background of the study

Oil price (OP) shocks have been a leading source of concern globally; however, the oil-importing countries are the most anxious owing to their high dependency on imported oil. OP fluctuations threaten macroeconomic stability of developing countries such as Nigeria through various channels.

Since the oil price shocks in 1973 and following the stagnation especially in the developed countries, studies on the relationship between oil price shocks and economic activities have increased (Kose & Baimaganbetov, 2015). These studies employed different econometric techniques, consequently coming up with different results (Hamilton, 1983; Akpan, 2009). A critical evaluation of these studies reveals a bias in focus on developed oil importing countries, leaving out the developing countries. A further review of these studies shows that while some of the scholars believe that oil price shocks is a blessing, others are of the opinion that it is a curse. In another observation, Hooker (1996) asserts that, there was no relationship between oil prices shocks and macroeconomic variables. However, the question of whether oil price shocks play any significant role in explaining variations in economic performance in the Africa environment remains contentious. While this debate remains, the oil price shocks transmission channels process is still not equivocally established in the oil exporting developing economies (Akpan, 2009; Olomola, 2010), more importantly that (Hamilton, 1983) claims that a rise in oil prices has been acknowledged as one of the primary causes of economic recession. Therefore, this problem leaves us with the following objectives: to determine whether oil price shocks play any significant role on the economy of Africa’s oil exporting countries and to also identify the transmission channel of oil price into the economy? Consequently, a few studies that have attempted to look at issues surrounding oil price and economic activities in Africa with specific focus on the significance of oil price shocks on the economic performance remains inconclusive and more importantly when a group of countries is considered for study.

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