Effect of the deregulation of downstream oil sector on the gross domestic product (GDP) and employment in Nigeria

The issue of deregulating the downstream oil sector through gradual subsidy withdrawal has generated heated debate in Nigeria with the government claiming that it will guarantee long term stability in product supply and price. This will translate into economic growth and development. Others, especially the organised labour, claims that deregulation will lead to higher product prices, higher cost of production, and cut of jobs and will bring about recession in the economy. Therefore, this paper employs Vector Autoregression Model using Variance Decomposition, Impulse Response Function and Granger Causality tests to assess the effect of deregulation of downstream oil sector on two macroeconomic variables which are; GDP and Unemployment. The paper finds evidence that changes in oil price due to deregulation is the major source of variation in GDP, and Unemployment in Nigeria. The result also reveals that there is positive impact of oil price changes on GDP but negative impact on Unemployment in the short run which became positive in the long run. Finally the Granger causality test indicates unidirectional causality running from Petroleum prices to GDP and also from Petroleum prices to Unemployment.