Granger's Causality Analysis of the Interaction Between Global Macroeconomic Variables and Commodity Price Movements in Nigeria

This study examines the interplay between global macroeconomic variables and commodity price movements in Nigeria, focusing on data spanning from April 1971 to July 2024. The analysis incorporates key global variables, including the Common Commodity Price Factor (CCPF), Global Factors (GF), and commodity-specific prices – copper (CP), corn (MP), and oil (OP). By employing a comprehensive econometric framework that includes correlation analysis, cointegration testing, short-term dynamics, Granger causality, impulse response functions, and variance decomposition, the study uncovers both short- and long-term dynamics in the global commodity price relationship. The results provide strong evidence of long-term cointegration between variables, with oil prices exerting a dominant influence on the Common Commodity Price Factor. Meanwhile, Granger Causality tests reveal two-way relationships between global macroeconomic indicators and commodity prices. Oil prices and global factors, in particular, significantly influence Nigeria's commodity price movements, underscoring the country's vulnerability to global shocks. Impulse response and variance analyses further highlight the evolving influence of global forces over time. The findings underscore the need for strategic policy interventions to mitigate external volatility, enhance resilience, and stabilise commodity markets. This study enhances the understanding of global economic relations and their impact on emerging markets, offering valuable insights for policymakers in resource-dependent economies, such as Nigeria.