Oil Price Volatility, Economic Growth and Financial Stability in Nigeria: A Time-Series Analysis

This study examined how oil price volatility affects economic growth and financial stability in Nigeria, using annual secondary data for 2000–2025. Oil price volatility (OPV) is measured as annual percentage volatility of crude oil prices, growth as real GDP growth, and financial stability by a composite index (FSI), with the non-performing loan ratio, credit, external reserves, the monetary policy rate and the fiscal balance as supporting indicators and controls. The analysis combines unit-root tests, ARDL bounds testing, first-difference models, Toda–Yamamoto Granger causality, a vector autoregression (VAR) with impulse responses and variance decompositions, and structural-break and robustness tests. Oil price volatility has a strong and robust short-run negative association with financial stability. A 10-percentage-point rise in volatility lowers the FSI by about 0.024 points in the same year, roughly 0.4 of its standard deviation, and the result holds across six alternative specifications. No long-run relationship with the FSI exists (bounds F = 1.73, below the lower critical value), and impulse responses show the effect fading within three years. The effect on growth is weaker: the baseline short-run coefficient is −0.176 (p = 0.047), but the long-run effect is insignificant and the short-run effect loses significance once crisis years or credit and reserves controls are added. No lagged Granger causality is detected among oil volatility, growth and financial stability, which points to same-year transmission in annual data. Volatility is unrelated to non-performing loans, while the fiscal balance is a stronger and more consistent driver of both financial stability and non-performing loans. The paper recommends rule-based fiscal buffers, oil-volatility scenarios in bank stress tests with countercyclical capital and liquidity buffers, coordinated fiscal and monetary policy, and sustained economic diversification