A Threshold Co-integration Analysis of Fuel Pump Price and the Cost of Transportation in Nigeria

This paper examined the existence of the asymmetric relationship between fuel pump price and the cost of transportation in Nigeria, and how these asymmetric price movements adjust to equilibrium in the long-run. Using the monthly data for the periods between the months of January 1995 and July 2014, the Threshold Asymmetric Cointegration Analysis and the Self-Exciting Threshold Autoregressive Model (SETAR), the result obtained indicated a significant evidence of asymmetric cointegration between fuel pump prices and the cost of transportation with a threshold value of 67.7 naira that represented the value that triggers regime change. The results of asymmetric adjustment also indicated a significant negative deviation of fuel pump price in the long-run, while the positive asymmetric of fuel pump price exhibit high level of persistence in the long-run. Precisely the negative deviation provided evidence of a speed of adjustment that is 14 times that of the positive speed of adjustment for fuel pump price. This thus triggers asymmetric effect on the transportation cost with a persistent tendency to revert to equilibrium in the long-run. The findings also revealed evidence of short-run positive and significant asymmetric of fuel pump price on the cost of transportation, while that of negative deviation remain persistence during the same period. These results indicate the tendency for transport fares to remain high even if the new liberalisation policy in the downstream petroleum sector succeeds in reducing the fuel pump price, thereby reducing welfare of the people. The paper thus suggest among other measures a collaboration/agreement between the government and transport workers'/owners' unions in ensuring that transport users benefit from any price reduction that may result from the liberalisation of the downstream petroleum sector