Effect of Fuel Subsidies and Oil Price Shock on Macroeconomic Instability in Nigeria

Abstract Despite extensive policy discussions, long-term effects of oil price shocks and gasoline subsidies on macroeconomic instability in Nigeria have not been fully examined empirically. This study closed this gap by examining the dynamic influence of these two variables using quarterly data from 2010Q1 to 2024Q4. The study's robust econometric methodology, which included descriptive statistics, unit root tests, Engel-Granger co-integration analysis, EGARCH modeling for volatility, and the Fully Modified Ordinary Least Squares (FMOLS) technique, demonstrated potent long-term relationships between the variables. The results showed that fuel subsidies and oil price shocks significantly contributed to unemployment (F-statistic = 4.5991; p = 0.0244). Poverty rate (F-statistic = 5.2456; p = 0.0023) and per capita income (F-statistic = 4.3121; p = 0.0414) were also considerably affected, with oil shocks exacerbating economic hardship and subsidies not reaching the neediest. With careful reinvestment in infrastructure, education, and job growth, the report suggests phasing off fuel subsidies.