The impact of oil price regimes on construction cost in Nigeria

Construction costs in Nigeria are often high and unpredictable. The pattern of variability is not explained by inflationary indices of common goods and services, but rather it is reactive to boom‐and‐burst shocks that are triggered by oil price regimes. Pearson’s correlation analysis is deployed to examine the relationships between the dynamics of crude oil price regimes (volume of crude oil export and price), selected indices of macrovariability—lending rate (prime), inflation rate and aggregate GDP growth, and supply deficit (demand–output gap) of local cement production. Analysis shows that construction cost is high because of high cost of finance and wild volatility that are stimulated by frictions in oil price regimes. Moreover, while the Nigerian construction industry shows positive growth and significant contribution to aggregate GDP growth in the past decade, the oil industry has persistently failed to trigger positive GDP growth. Furthermore, the variables under examination (as listed above) are also subjected to regression analysis to develop a mathematical model for predicting construction costs, relative to crude oil shock and defined macrovariability indices. Recommendations are made on how to avoid multicollinearity in similar studies and for areas of further studies.

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