THE IMPACT OF PETROLEUM SUBSIDY ON THE CONSUMPTION OF PETROLEUM PRODUCTS IN NIGERIA

This study examines the impact of petroleum subsidy on the consumption of petroleum products in Nigeria from 2000 to 2020 using an Error Correction Model (ECM). The analysis reveals that petroleum subsidies significantly stimulate consumption by enhancing affordability. Surprisingly, higher inflation rates are associated with increased petroleum consumption, challenging conventional economic theory which predicts reduced consumption due to diminished purchasing power. Conversely, the relationship between petroleum prices and consumption is weak and statistically insignificant, suggesting that factors beyond price influence consumer behavior. Additionally, higher Gross Domestic Product (GDP) per Capita is unexpectedly associated with decreased petroleum consumption, indicating the presence of other influential factors independent of income levels. These findings underscore the complexity of the factors influencing petroleum consumption in Nigeria and highlight the need for evidence-based policymaking. Recommendations include conducting a comprehensive review of subsidy programs, investing in renewable energy, pursuing economic diversification, managing inflation, and strengthening data-driven decision-making to promote sustainable and resilient petroleum consumption patterns while fostering inclusive economic growth and development.