A dynamic fragmentation of the misery index in Nigeria

Abstract

This study adopts a dynamic approach to compute the level of economic distress in Nigeria. Quarterly series from 2002Q1 to 2016Q4 were utilized in computing the index. Leveraging on the expectations-augmented Phillips curve and Okun’s law, the results obtained indicate a minimum and maximum misery values of 16.92% (2007Q3) and 53.42% (2016Q4), respectively, with an average value of 31.49% over the study horizon. The index recorded a skewness of 0.31% indicating moderate level of asymmetry and a kurtosis of 3.26% indicating that the index is leptokurtically distributed with an approximate standard deviation of 8.00%. This implies the presence of appreciable level of volatility. A plot of crude oil price with the misery index overall shows that as price increased, the misery index decreased but in some instances, increase in crude oil price was consistent with increased misery. The persistent insecurity and militancy activities may have accounted for the observed puzzling co-movement. The computation also indicates that decrease in expected variation in inflation, results in increased unemployment by 61.0 per cent decrease in the variation in expected inflation associated with a unit change in the variation between the potential and actual rates of unemployment over the study horizon, which confirms theoretical expectations. On the whole, the results suggest that economic well-being in Nigeria has worsened over the years, especially between 2013Q3 and 2016Q4. The study, therefore, recommends sustained policies aimed at diversifying the revenue base of the economy away from heavy dependence on crude oil. This has the capacity to obviate the hardship occasioned by the fall in oil price and reduction in oil production.

Keywords:

• economic distress index
• expectation-augmented Phillips curve
• inflation
• modified Okun’s law
• puzzle
• co-movement

JEL classifications:

• E66
• E32
• E31

Public Interest Statement

This paper tries to decompose the historical trend of poverty level between 2002Q1 and 2016Q4 as it relates to the level of unemployment, inflation and output. The study observed a trend between oil price shock and level of economic distress within the review period but however noticed a puzzle between the first two quarters in 2016. Against earlier established trend between oil price shock and economic distress, it was observed, that as oil prices were upticking, the level of misery continued to explode. This however may not be unconnected with the militancy in the Niger Delta which has led to a reduction in the production capacity and wastages emanating from the destruction of oil pipelines and export terminals vis–a–vis insurgency in the North-Eastern part of the country, considered to be the agricultural bed.

Disclaimer

This study should not be reported as representing the views of the CBN. The views expressed herein are those of the author(s) and are not necessarily those of the Central Bank of Nigeria and its Management.

Notes

1. Nigeria’s National Bureau of Statistics (NBS) data base.

Additional information

Notes on contributors

K. Moses Tule

K. Moses Tule is the lead author of this paper titled: A Dynamic Fragmentation of the Misery Index in Nigeria and the Director, Monetary Policy Department, Central Bank of Nigeria. He has special interest in researches that inform policy, especially monetary policy. He is a life member of The Nigerian Economic Society and a fellow of The Nigerian Statistical Association among others. He is well published in referred journals, both locally and internationally.