Vol. 5, No. 1, Summer 2016 © 2012 Published by JSES. CRUDE OIL PRICE SHOCKS AND MACROECONOMIC BEHAVIOR IN NIGERIA Emmanuel Olusegun STOBER a Abstract Milton Friedman's permanent income hypothesis suggests that frictionless open economies with depletable natural resources should increase its external reserves with most of the resource windfalls. Nigeria like any other country endowed with natural resources such as crude oil and liquefied natural gas are often faced by the Dutch disease. The evolution of the Nigeria’s foreign exchange market has been influenced by the changing pattern of international trade, institutional changes in the economy and structural shifts in production. The increased export of crude oil followed by the sharp fall in its prices, and enhanced official foreign exchange receipts should give the government a wakeup call. This study focuses on macroeconomic behavior in the presence of crude oil price volatility. The dataset covered the period of 1970-2014, using OLS model. Given the high degree of dependency and contribution crude oil has on Nigeria’s revenue generation, this analysis reveals crude oil price to be having a positive impact on Nigeria’s economic wellbeing. A 1% increase in its price has an impact of 0.67% increase in GDP. Adding-up all other analyzed variable, crude oil still stand as the mean influential factor to the Nigerian economic development. Therefore, it is of optimum important to quickly diversify the economy, to prevent the repercussion of crude oil price shock, and also heavily invest in the development of infrastructural facilities to create the enabling environment for a non-oil economy. Keywords: Exchange rate, External reserves, Nigerian economic development, Vector Error Correction Model (VECM) JEL Classification: C54, C55, C22, E37, E52 Author’s Affiliation a - Bucharest University of Economic Studies, Romania. Email: stober.emmanuel@gmail.com (corresponding author).