The IUP Journal of Applied Economics
Revenue Shocks and Economic Growth: An ECM Analysis of Nigerian Economy

Article Details
Pub. Date : Jan, 2023
Product Name : The IUP Journal of Applied Economics
Product Type : Article
Product Code : IJAE020423
Author Name : Bhola Khan
Availability : YES
Subject/Domain : Economics
Download Format : PDF Format
No. of Pages : 18



A nation's revenue is the backbone of its economy, and if it is unstable or declining, it affects the development of various sectors. In Nigeria, the main source of revenue is oil exports. Therefore, any downturn in oil prices negatively affects the development process in Nigeria. The study is an attempt to establish the association between revenue shocks and economic growth of Nigeria. Secondary data for the period 1985-2021, sourced from various issues of Central Bank of Nigeria Bulletin (CBN), National Bureau of Statistics (NBS), and World Development Indicators (WDIs) has been used. To satisfy the objectives, stationarity test, Ordinary Least Square Estimator (OLS), and Error Correction Model (ECM) have been employed. After a careful analysis of the results, it is found that there is a long-run relationship between economic growth and other independent variables. Moreover, the results of the ECM show that the system is stable and it has the capacity to converge shortrun equilibrium at the rate of -19.80% after disturbances in the system. Therefore, based on the findings, the study recommends that the government should focus on both short and long-run processes and start shifting its dependence on oil-based revenue.


It is often seen that most mineral-rich countries are dependent on only one source of revenue, i.e., oil production. Nigeria is an oil-producing and mineral-rich country in Africa, and the revenue generated from them plays an important role in its economic development. In 2021, agriculture sector contributed 23.36% to Nigeria's GDP, industrial sector 31.41%, and tertiary sector 43.79% (NBS, 2022). The oil and gas sector contributed about 80% to Nigeria's total revenue (CBN, 2022).

Currently, Nigeria is a member of Organization of the Petroleum Exporting Countries (OPEC), and in 2022, its share of oil production among all OPEC member countries was 37.05 billion barrels, i.e., 3.0% (OPEC Annual Statistical Bulletin, 2022). Nigeria's crude oil revenue in the first six months of 2022 was N=11 tn (NBS, 2022), and the non-oil sector contributed N=2 bn (NEPC, 2022). Therefore, it is evident that oil revenue contributes immensely to the Nigerian economy. The oil revenue is mainly used to finance developmental