FUEL PRICE SHOCKS AND POVERTY DYNAMICS IN NIGERIA: ASYMMETRY, SUBSIDY REMOVAL, AND MACROECONOMIC IMPACTS

Abstract

2 This study examines the impact of Fuel Price Shocks and Poverty Dynamics in Nigeria: Asymmetry, Subsidy Removal, And Macroeconomic Impacts with the aim of assessing both the short-run and long-run dynamics linking subsidy withdrawal, petroleum motor spirit (PMS) prices, gross domestic product (GDP) growth, inflation, and poverty levels. The scope of the study covers the post-subsidy removal period with a focus on the macroeconomic consequences for household welfare. The study adopted the nonlinear autoregressive distributed lag (NARDL) methodology, supported by preliminary diagnostic tests including the Augmented Dickey–Fuller and Phillips–Perron unit root tests which revealed a combination of I(0) and I(1) variables, thereby validating the choice of the model. The bounds test for cointegration confirmed the existence of a long-run relationship among the variables, which permitted the estimation of both short-run coefficients and long-run error correction dynamics. The findings of the study revealed that rising PMS prices significantly exacerbate poverty levels, while GDP growth contributes to reducing poverty, and inflation further worsens the living conditions of the poor. The asymmetric framework of the NARDL model also indicated that the negative impact of subsidy removal is more pronounced in the short run compared to the potential long-run welfare benefits of resource reallocation. The study concluded that while subsidy removal may enhance fiscal sustainability and economic efficiency, it imposes a severe welfare burden on low-income households in the immediate term. Therefore, the study recommended that government should implement targeted social protection programs and invest subsidy savings into pro-poor sectors such as health, education, and infrastructure.Poverty, Inflation, GDP Growth