The Impact of Crude Oil Production on Economic Growth in Nigeria
OBJECTIVE OF THE STUDY
The objective of this research work is sub-divided into two, the main and specific. The main Objective is to examine the impact of crude oil production on economic growth in Nigeria. Specific Objectives include;
- To examine the impact of crude oil export revenue on economic growth in Nigeria.
- To examine the transmission channel through which exchange rate is affected by crude oil export and thus economic growth in Nigeria.
- To examine the relationship between Nigerian foreign reserve and her economic growth through crude oil export.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
THE NIGERIA ECONOMY
Nigeria’s economy is struggling to leverage the country’s vast wealth in fossil fuels in order to displace the crushing poverty that affects about 57 percent of its population. Economists refer to the coexistence of vast natural resources wealth and extreme personal poverty in developing countries like Nigeria as the “resource curse”. Nigeria’s exports of oil and natural gas at a time of peak prices have enabled the country to post merchandise trade and current account surpluses in recent years. Reportedly, 80 percent of Nigeria’s energy revenues flow to the government, 16 percent covers operational costs, and the remaining 4 percent go to investors. However, the World Bank has estimated that as a result of corruption 80 percent of energy revenues benefit only one percent of the population. During 2005 Nigeria achieved a milestone agreement with the Paris Club of lending nations to eliminate all of its bilateral external debt. Under the agreement, the lenders will forgive most of the debt, and Nigeria will pay off the remainder with a portion of its energy revenues. Outside of the energy sector, Nigeria’s economy is highly inefficient. Moreover, human capital is underdeveloped Nigeria ranked 151 out of 177 countries in the United Nations Development Index in 2004 and non-energy-related infrastructure is inadequate. During 2003–2007 Nigeria has attempted to implement an economic reform program called the National Economic Empowerment Development Strategy (NEEDS). The purpose of NEEDS is to raise the country’s standard of living through a variety of reforms, including macroeconomic stability, deregulation, liberalization, privatization, transparency, and accountability. NEEDS addresses basic deficiencies, such as the lack of freshwater for household use and irrigation, unreliable power supplies, decaying infrastructure, impediments to private enterprise, and corruption. The government hope that NEEDS will create 7 million new jobs, diversify the economy, boost non-energy exports, increase industrial capacity utilization, and improve agricultural productivity. A related initiative on the state level is the State Economic Empowerment Development Strategy (SEEDS). A long-term economic development program is the United Nations (UN) sponsored National Millennium Goals for Nigeria. Under the program, which covers the years from 2000 to 2015, Nigeria is committed to achieve a wide range of ambitious objectives involving poverty reduction, education, gender equality, health, the environment, and international development cooperation. In an update released in 2004, the UN found that Nigeria was making progress toward achieving several goals but was falling short on others. Specifically, Nigeria had advanced efforts to provide universal primary education, protect the environment, and develop a global development partnership. However, the country lagged behind on the goals of eliminating extreme poverty and hunger, reducing child and maternal mortality, and combating diseases such as human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS) and malaria.
CHAPTER THREE
STUDY METHODOLOGY
Introduction
This chapter describes the methodological framework used in attaining the stated objectives of the study. It also shows the research hypothesis postulated. The main focus of this chapter is on the research design, type and sources of data, the model developed for this study and the tool of analysis.
Research design
A longitudinal study, like a cross-sectional one, is observational. So, researchers do not interfere with their subjects. However, in a longitudinal study, researchers conduct several observations of the same subjects over a period of time, sometimes lasting many years. The benefit of a longitudinal study is that researchers are able to detect developments or changes in the characteristics of the target population at both the group and the individual level. The key here is that longitudinal studies extend beyond a single moment in time. As a result, they can establish sequences of events.
Specific Research Method
Time-series analysis (TSA) is a statistical methodology appropriate for longitudinal research designs that involve single subjects or research units that are measured repeatedly at regular intervals over time. TSA can be viewed as the exemplar of all longitudinal designs. TSA can provide an understanding of the underlying naturalistic process and the pattern of change over time, or it can evaluate the effects of either a planned or unplanned intervention. The advances in information systems technology are making time-series designs an increasingly feasible method for studying important psychological phenomena.
Modern TSA and related research methods represent a sophisticated leap forward in the ability to analyze longitudinal data. Early time-series designs, especially within psychology, relied heavily on graphical analysis to describe and interpret the results.\
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
INTRODUCTION
This chapter presents and discusses the result of Augmented Dickey Fuller (ADF) and Philips unit root tests of individual series, followed by modified ordinary least square (OLS) regression technique.
Table 1 depicts the result of the ADF unit root test. It can be seen that all the variables (gross domestic product (GDP), crude oil production(COP)output and economic growth (EGRWTH) are not stationery at levels but they become stationery after differentiating once at 5 percent level of significance.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to reiterate that the objective of this study was to examine the impact of crude oil production on economic growth in Nigeria.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in examining the contributions of crude oil production on economic growth in Nigeria
Summary
This study was undertaken to examine the impact of crude oil production on economic growth in Nigeria. The study was introduced with chapter one where the statement of the problem was clearly defined. The study objectives and research hypothesis were defined and formulated respectively. The study reviewed related and relevant literatures. The chapter two gave the conceptual framework, empirical and theoretical studies. The third chapter described the methodology employed by the researcher in collecting both the primary and the secondary data. The research method employed here is the descriptive survey method. The study analyzed and presented the data collected in tables and tested the hypotheses using the time series statistical method with aid of E-view software 9.0. While the fifth chapter gives the study summary and conclusion
Conclusion
It can therefore be concluded that economic growth in Nigeria depends on changes in crude oil prices among other things. This validates the Renaissance growth model and lends support to empirical evidences obtained from related works of Ebele (2015), Yusuf (2015), and Alley, Asekomeh, Mobolaji and Adeniran (2014). Crude oil remains the driving force behind any growth prospects that the country may envisage. Due to the country’s over-reliance on crude oil, any changes in crude oil price cause serious distortions to some of the major macroeconomic variables of the economy. Inflation in Nigeria is induced by changes in oil price while evidence of causality was established between crude oil price the price pump price of fuel in Nigeria.
Recommendation
The need for diversification of the Nigeria’s revenue sources is more glaring now than ever and needs to be pursued with renewed vigour. The country is endowed with vast land for cultivation, a favourable weather condition for crops and livestock to thrive as well as large population size to man the agricultural sector. Government should therefore take advantage of these areas of strength to diversify in that direction. Policies should be redirected towards revitalizing the agricultural sector by injecting funds through means that are easy to be accessed by farmers. Research and development efforts should be intensified towards the production new improved yields crops. In addition, investment should be directed to developing sound storage facilities to encourage the production of perishable crops. A developed agricultural sector has the tendency of providing alternative revenue source to absorb the shocks arising from changes in crude oil prices that the country has come to depend on so heavily.
References
- Al-mulali, U. (2010). The Impact of Oil Prices on the Exchange Rate and Economic Growth in Norway. Munich Personal RePEc Archive Paper, No. 26257
- Al-mulali, U. & Sab, C.N.C. (2010). The Impact of Oil Shocks on Qatar’s GDP. Munich Personal RePEc Archive Paper, No. 27822. Alley, I.,
- Asekomeh, A., Mobolaji., H. & Adeniran, Y. A. (2014). Oil Price Shocks and Nigerian Economic Growth, European Scientific Journal, July 2014.10(19), 375-391.
- Ani, W., Ugwunta D. , Oliver I. & Eneje B. (2014). Oil Price Volatility and Economic Development:Stylized Evidence in Nigeria. Journal of Economics and International Finance, 6(6), 125-133.
- Adelman, M.A. (1976), “The World Oil Cartel”, Quarterly Review of Economics and Business, 16 April, 3-11. 2
- . Ajakaiye Olu, (2001) Economic Development in Nigeria: A Review of Recent Experience, Proceedings of the First Annual Monetary Policy Conference (Central Bank of Nigeria; 2001), pp. 12-36. 3.
- Central Bank of Nigeria (2002). The Changing Structure of the Nigerian Economy and Implications for Development. (Abuja: CBN) 4.
- Dickie, R.K., “Development of Crude Oil Production in Nigeria, and the Federal Government Control measures” (paper presented to the Institute of Petroleum, London, 1966). 5.
