MODELLING THE IMPACT OF COVID-19 ON NIGERIA’S ECONOMY USING VAR AND ARDL APPROACHES
Authors: Ifeanyi Okafor Chukwudi, Wei Zhang Yuxini
DOI: 10.5281/zenodo.17367982
Published: January 2024
Abstract
<p><em>This study aimed to model the impact of the COVID-19 pandemic on economic growth and stability in Nigeria using Vector Autoregressive (VAR) Model and Autoregressive Distributive Lag (ARDL) Model, integrating four variables encompassing Nigerian COVID-19 daily confirmed cases data (CC) along with other economic metrices including the Nigerian Stock Exchange All Shares Index (ASI), Daily Nigerian Naira/United States Dollar Exchange Rate (NGNUSD), and Nigerian Crude Oil Price (OP), to discern the pandemic's trends and implications on the Nigerian Economy amid post-pandemic. Covering daily time series data for the variables from May 26, 2020, to May 25, 2022, a total of 501 days. The VAR model estimation revealed insights into short-term dynamics among key economic variables, supported by stable outcomes consistent with previous studies, emphasizing significant causal relationships among economic indicators during crises like the COVID-19 pandemic. The VAR(8) model was selected as the most appropriate model using the Akaike Information Criterion (AIC). The VAR Residual Normality Test indicates that multivariate residuals are normal, as evidenced by the Chi-square test statistics and their associated p-values being less than 0.05. Moreover, the VAR Residual Heteroscedasticity Test shows no evidence of heteroscedasticity, as the Chi-square test statistic value of 1400.368 with a corresponding probability value of 0.51341 suggests. In examining the short-term impact of the COVID-19 pandemic on Nigeria's economic growth and stability, the variance decomposition analysis conducted on the VAR(8) model offers valuable insight on significant impact of COVID-19 on economic growth and stability over a short period of time. Meanwhile, the ARDL model estimation, employing various model specifications such as ARDL(4,0,2,2), ARDL(3,1,1,0), ARDL(2,3,0,0), and ARDL(4,3,0,0) for CC, ASI, NGNUSD, and OP as dependent variables, respectively, underscored the significance of autocorrelation effects in fluctuating economic variables, providing detailed insights into only short-run impacts which corresponded to the result of VAR model and emphasizing the interconnectedness of economic indicators, particularly with oil prices. The study's findings underscore the dynamic impact of the COVID-19 pandemic on economic growth in Nigeria, revealing a short-run relationship among key variables. There were no long run effects of the pandemic on the economic stability as both VAR and ARDL suggested. </em></p> <p><em>ARDL emerged as the preferred model for analyzing these relationships, offering insights into both short-term fluctuations and also investigating for a long-term trends among interacting macroeconomic indicators while VAR could only account for short-run relationship only. This highlights the nuanced nature of the pandemic's effects on Nigeria's economy, emphasising the importance of adaptable analytical frameworks like ARDL for comprehensively assessing the evolving economic landscape amidst this post pandemic era. </em></p>
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