Oil Price Shocks and Income Inequality in Nigeria: Evidence from Nonlinear ARDL Approach

Abstract

This study examines the impact of decrease/increase oil prices on income inequality in Nigeria based on annual data covering the period from 1981 to 2018. To achieve this objective, a nonlinear autoregressive distributed lag approach (NARDL) and vector error correction modeling approaches are employed. The outcomes show that changes in oil price have an asymmetric effect on income inequality only in the short run. Negative shocks in oil prices reduce income inequality significantly, while positive shocks increase it though not significant. The income inequality’s response to negative shocks in oil prices is stronger. Moreover, GDP per capita moderates income inequality in both the short and long run. Openness reduces income inequality in the long run but hurts it in the short run. Corruption hurts income inequality in the short-run, while the misery index increases it in the long run. Hence, policies that help to reduce oil prices, promote sustainable economic growth and reduce corruption, inflation, and unemployment are needed to reduce income inequality.