An Empirical Investigation of Oil Revenue and Economic Growth in Nigeria

Abstract

This empirical study examined oil revenue and economic growth in Nigeria between 1981 to 2014. Secondary data on gross domestic product (GDP), used as a proxy for economic growth; oil revenue (OREV), and government expenditure (GEXP) which represented the explanatory variables were sourced mainly from CBN publications. In the course of empirical investigation, various advanced econometric techniques like Augmented Dickey Fuller Unit Root Test, Johansen Cointegration Test and Error Correction Mechanism (ECM) were employed and the result reveals among others: That all the variables ware all stationary at first difference, meaning that the variables were not integrated of the same order justifying cointegration and error correction mechanism test. The cointegration result indicated that there is long run relationship among the variables with three cointegrating equation(s). The result of the error correction mechanism (ECM) test indicates that all the variables except lag of government expenditure exerted significant impact on economic growth in Nigeria. However, all the variables exhibited their expected sign in the shortrun but exhibited negative relationship with economic growth in the longrun except for government expenditure, which has positive relationship with economic growth both in the longrun and shortrun. The study concluded that Government should use the revenue generated from petroleum to invest in other domestic sectors such as Agriculture and manufacturing sector in order to expand the revenue source of the economy and further increase the revenue base of the economy.