An Empirical Analysis of the Impact of Gradual Withdrawal of Subsidy on Domestic Consumption of Premium Motor Spirit in Nigeria: 1977-1999

Abstract

The oil industry is the main backbone of the Nigeria economy. Oil one of the most valuable, versatile and flexible non reproductive, depleting natural resources is Nigeria's major source of foreign exchange earning constituting about 97% of Nigeria's foreign exchange earning since the 80's and just above 20%-25% total GDP in the 80's and 70% of budgetary revenue. Oil has remained the engine of growth of the Nigerian economy. Over the years the price of petroleum products has been subsidized. However, with effect from September 1986, government decided to gradually withdraw the subsidy on
petroleum product. This has fueled the increase in the general price level. The study hypothesized that the withdrawal of subsidy or increase in the price of Premium motor spirit (P.M.S) has no significant effect on the domestic consumption of the commodity P.M.S was found out to be inelastic in demand. Consequently increase in its price has no effect on domestic consumption demand and impact negatively on consumers. Therefore, the Nigerian economy base should be diversified rather than depending solely on the oil sector for sustaining development of the economy.

African Research Review Vol. 1 (2) 2007: pp. 98-117