DEREGULATION OF THE DOWNSTREAM PETROLEUM SECTOR AND ECONOMIC GROWTH IN NIGERIA

Abstract

The downstream petroleum sector in Nigeria plays a crucial role in the economy, influencing production costs, transportation, and the overall standard of living. Over the years, government control of petroleum product pricing has led to inefficiencies, underinvestment, and heavy subsidy burdens. In response, there have been increasing calls and efforts to deregulate the sector to foster market efficiency, attract investment, and reduce fiscal strain. However, the impact of such deregulation on macroeconomic indicators such as economic growth, inflation, and the standard of living remains a subject of debate and empirical investigation. However, this study examined the impact of deregulating Nigeria’s downstream petroleum sector on its economic growth, inflation, and standard of living. Theoretical frameworks employed include the Endogenous Growth Model, Bergson Social Welfare Theory, and the Keynesian Theory of Inflation. Using data from 1981 to 2021, the study employed the Augmented Dickey-Fuller (ADF) unit root test and Autoregressive Distributed Lag (ARDL) technique, alongside stability and diagnostic tests. The findings reveal that deregulation of the petroleum sector negatively impacts Nigeria’s economic growth, with significant adverse correlations between the prices of PMS, AGO, and DPK and GDP growth. Although the price of PMS has a negligible positive impact on standard of living, AGO and DPK have a significant negative effect. The deregulation of petroleum prices contributes to rising inflation, with PMS and AGO prices positively correlating with inflation, while DPK has a marginal positive effect. The study suggests that deregulating PMS could promote sector competition and mitigate the rising fuel prices, which hurt Nigeria’s economy and standard of living. It recommends that the government de-regulate PMS, encourage private sector participation, and undertake refinery maintenance to reduce reliance on imported petroleum. Policies aimed at controlling inflation and boosting domestic refining capacity are essential for sustainable energy and economic security.