Abstract
Removal of fuel subsidies in Nigeria is a very critical and topical issue, which has important implication for the nation’s economic stability and growth. Traditionally, the Nigerian government has used fuel subsidy to maintain domestic fuel prices low for consumers to reduce cost of living and transportation. This study, therefore, examines the impact of fuel subsidy removal on the economic growth of Nigeria. The methodology adopted was ‘ex post facto’. Data were sourced from WDI and Global subsidies initiative within the periods of 2000 to 2023. The method of analysis adopted for the study were ARDL and granger causality test. Results revealed that fuel subsidy expenditure and inflation rate have negative but not significant impact on economic growth in both long run and short run, the it was also revealed that the exchange rate has a significant negative impact on the economic growth in the short run but not significant in the long run, there was no causality between fuel subsidy expenditure and economic growth. Conclusions reached showed that government should explore alternative strategies that will improve economic growth. The resources saved from the removal of fuel subsidies should be channeled to sectors that have proven to show great potential for increasing growth, such as agriculture, renewable energy, and manufacturing because those sectors can create jobs and stimulate economic activities. The study therefore concludes that eliminating fuel subsidies is unlikely to have a substantial negative impact on Nigeria’s GDP, as public spending on subsidies has shown little or no meaningful contribution to the nation’s economic growth. This supports subsidy removal as fiscal strategy to transfer resources to more productive sectors.
Keywords: Fuel subsidy, economic growth, Inflation, Exchange rate
JEL Classification: H24, O47, P24