Economic effects of fuel subsidy in oil producing countries
: the case of Nigeria

  • Ismail Soile

    Student thesis: Doctoral ThesisDoctor of Philosophy


    The thesis conducts a specific to general investigation on petroleum product subsidies in oil exporting countries. Starting with a specific focus on Nigeria, I examine the benefit incidence and the economic effects of fuel subsidies using the 2009/10 Harmonized Nigeria Living Standard Survey and the 2011 input-output table respectively. I then proceed to conduct a general analysis by empirically estimating the effects of subsidies on fuel consumption, CO2 emission and social welfare for OPEC and member countries. Results from the Benefit Incidence Analysis (BIA) show that the richest household quintile enjoys twice as much the benefit of fuel subsidies as the poorest household quintile on the aggregate. Both the gasoline and kerosene subsidies are found to be more regressive than the per capita expenditure suggesting the inefficiency of fuel subsidy as a mechanism for income redistribution. Using the Input-Output and SAM multiplier approach, I study the effect of reducing gasoline subsidy as implemented in January 2012 on sectorial outputs, household expenditure and government spending under two scenarios. When there is no reinjection from the reduced subsidy spending, the results show that the 49% increase in gasoline price would lead to a 0.01% and 0.18% reduction in GDP and government spending respectively. There is also a fall in labour and capital income by 0.29% and 0.34% respectively while household expenditure increased by 0.33%. When the savings from subsidy reduction is re-injected to the economy, the results show that labour and capital income increased by 0.24% and 0.17% respectively while both GDP and government expenditure increased by 1% and 0.12% respectively. In the general analysis, I apply the Pesaran, (2007) cross-sectionally augmented Im, Pesaran, and Shin Panel unit root test to check for cross sectional dependence, the four panel cointegration tests developed by Westerlund, (2007) to inspect long-run relationship and the Common Correlated Effects (CCE) Mean Group estimation to obtain consumption elasticities for OPEC and member countries. The results confirm that subsidies on fuel prices in these countries are quite large while products are highly price inelastic suggesting that price reforms and fuel taxes can help improve revenue, reduce wasteful consumption and CO2 emission.
    Date of Award2015
    Original languageEnglish
    SupervisorXiaoyi Mu (Supervisor)

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