The world economy is facing the most severe financial crisis since the Great Depression of the last century. The risk of global recession has heightened significantly and volatility of commodity prices, which is the mainstay of most developing countries like Nigeria, has increased further. If this situation continues to deteriorate, developing countries could be in great jeopardy.

Time series data relating to the period 1990-2008 were collected and analysed accordingly, using the econometric technique of multiple regression. Statistical tests of significance were also carried out in order to determine the possible impacts of the current global financial crisis on the Nigerian economy. The tests include: Correlation Coefficient (R); Coefficient of Multiple Determination (R2); t-Test; F-statistic and Durbin-Watson test.

The findings of this study revealed that the financial crisis was responsible for the fluctuation in crude oil prices, external reserves, exchange rates, decline in export, lower portfolio and foreign direct investment (FDI) inflow, fall in equity market, decline in remittance from abroad, dwindling economic growth, etc.

It was concluded that the Federal Government should come up with intervention policies that will minimise these effects and jumpstart the economy and that business operators should learn to do things using resources at their disposal to develop and expand at manageable level to stem the tide of the crisis.



1.1   Introduction

The current global financial crisis, unprecedented in the history of the modern world, has been described as Wall Street’s biggest crisis since the Great Depression in October 1929. From the Wall Street financial headquarters in the United States, across to Europe, Japan and China, the global financial system around which modern free market economy and capitalism is built is crashing like a pack of cards. The financial crisis, which had been brewing for a while, started to show its effects in October 2008. Around the world, stock markets began to crash as billions of mortgage-related investments went bad. Mighty investment banks which once ruled the financial world such as Lehman Brothers and Merrill Lynch have either crumbled or reinvented themselves as humdrum commercial banks.

The roots of the current global financial crisis can be traced back to the fallout of the US subprime mortgage lending, which started in early 2007. Without hesitation, it spread into other markets and economies via a combination of market failures and regulatory weaknesses.

In general, market failed because of poor corporate governance and incompatible executive remuneration structures. Moreover, the lack of transparency in trading procedures, financial instruments, and balance sheet positions of major financial institutions also exacerbated market failures. In regulatory terms, most countries have weak idiosyncratic rules pertaining to the operation of trading instruments and financial conglomerates. Poor capital regulation and accounting rules contributed to excessive risk-taking by banks. In addition, some rating agencies were also not subjected to the jurisdiction of the national regulators.

In turn, this had led to complete breakdown of short-term financial transactions in leading advanced and emerging market economies, and subsequently, meltdown in global securities exchanges. With the freezing of interbank lending and money markets, capital could not be channeled to economic agents operating across the entire production chain.

However, there are many similar views on the causes of the current economic meltdown. These include the inability of homeowners to make their mortgage payments, poor judgment by the borrowers and/ or the lender, speculation and overbuilding during the boom period, risky mortgage products, high personal and corporate debt levels, complex financial innovations, central bank policies and government regulation. The significant decline in housing prices led to delinquencies in mortgage payments and foreclosures in the US which caused a ripple effect across the financial market and global banking systems, as investments related to housing prices declined significantly in value, placing the health of key financial institutions and government sponsored enterprises at risk.

Dominique Strauss-Kahn (2008) said “At the core of the problem were falling house prices in the U.S. and the resulting loss in the value of securities linked to mortgage liabilities. Too many risky mortgages were approved. It worked for a while, and led to high earnings, but in the end, the carelessness led to the crisis”.

It is however noteworthy that this wild financial period is not confined to the United States. The world has become a global village sewn together through telecommunications and technological advancements. This is a clear indication that the global economy is inter – related, hence, what affects one country directly or indirectly affect the other. The economy of Nigeria, as a developing nation, largely depends on the economies of various foreign developed countries that are being plagued by the current global financial crisis.

Consequently, it is imperative to appraise how the global economic meltdown would affect the key sectors of the Nigerian economy. Since the commencement of the current global financial crisis, fears have been expressed on its likely implications on our economy, especially on the financial sector. Soludo (2008) was of the opinion that the crisis will not affect the Nigeria economy. He maintains that the banking consolidation programme was a pre-emptive measure ahead of the crisis. So, the Nigerian banks were among the most capitalized in the world.

Without prejudice to the assurance given by the authorities of the Central Bank of Nigeria (CBN) that the economy is immured to the global financial crisis, there is need to critically look at the wider implications of the crisis which has ravaged not only our economy, but also developed economies of United States, Europe and Asia.

1.2Statement of Research Problem

Undoubtedly, the Nigerian economy is not insulated from the impact of global financial meltdown owning to it’s interconnectedness with the global economy. The sectoral interconnectedness of Nigerian economy implies that the effects of global financial crisis will reverberate through a large section of the Nigerian economy.

The study is therefore, designed to address the following issues as it affects the Nigerian economy.

    I.        The chronology of events leading to the current global economic crisis and the channels of transmission of the crisis onto Nigerian economy.

  II.        A critical appraisal of the implications of the crisis on the Nigerian macroeconomic indicators such as GDP, foreign reserve, oil revenue, inflation rates, exchange rates and stock price index.

III.        An appraisal of the various policy measures which have been adopted by the monetary authority to minimise the impacts of the global financial meltdown on the nation’s economy.

1.3   The Aims and  Objectives of the Study

The study is aimed at achieving the following specific objectives:

I.            To conduct an investigation into the causes of the current global financial crisis and its impacts on specified macroeconomic variables;

II.          To ascertain the impacts of the crisis on general price level, exchange rate, stock price index, external reserves, crude oil price, and the possible implications of these variables for the nation’s economic growth;

III.       And, to assess the efficacy of the various policy measures which have been adopted by the monetary authorities to curb the menace of global financial meltdown in Nigeria.

1.4Research Questions

The study provides appropriate responses to the following questions in relation to the impacts of the current global financial meltdown on the Nigerian economy.

    I.        What are likely causes of the current global economic crisis in Nigeria?

  II.        What are the possible implications of the crisis on crude oil revenue in Nigeria?

III.        What are the impacts of the crisis on the Nigerian economic growth?

1.5   The statement of Research Hypotheses

The following hypotheses were tested with the view of providing an analytical research of the study.

I.        Ho:  The variations in the stock price index, inflation   rate, exchange rate and external reserves do not     have significant impacts on Nigerian oil revenue.

Ha:   The variations in the stock price index, inflation   rate, exchange rate and external reserves have significant impacts on       Nigerian oil revenue.

II.        Ho:   The fluctuations in the stock price index, crude oil        price,       inflation rates, external reserves and        exchange rates do not        have significant impacts on Nigerian economic growth.

Ha:   The fluctuations in the stock price index, crude oil        price,       inflation rates, external reserves and        exchange rates have significant impacts on Nigerian    economic growth.

1.6   The Research Methodology

The econometric technique of multiple regression will be used to carry out the statistical test of significance on the possible impacts of the current global financial crisis on the Nigerian economy. These tests include correlation coefficient (R), coefficient of multiple determination (R2), t-Test, F-statistic and Durbin-Watson test (DW). The coefficient of determination (R2) will help examine the explanatory power of the independent variables. The F-statistic will be used to determine the significance of the parameters of the estimates. TheDW test will equally be used to determine the incidence of autocorrelation in the model.

1.6.1        Methods

1.6.2        Source of data

The study utilises secondary sources of data in form of time series data which will be obtained from the Central Bank of Nigeria (CBN) annual statistical bulletin, publications of Nigerian Stock Exchange (NSE), International Monetary Fund (IMF), and so on. Economic journals, national dailies, and relevant websites will also be consulted.

1.6.3        Model Specifications

The econometric models of Ordinary Least Square (OLS) technique will be adopted in other provide an empirical analysis of the study. The models are outlined as follows.

Model I:

Ү= 0+1Χ1+2X2+3X3+4X4+Μ


 Ү=   Crude Oil Price (US$Million),

Χ1=   Stock Price index (#Million),

Χ2=   Inflation Rates (%),

Χ3=   Exchange Rates (%),

Χ4=   ExternalReserves(US$Million),

0=   Constant Term

1…4=        Coefficients of the Independent Variables, and

Μ=    Stochastic Variable.

Model II:







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