This study examines the effect of oil discovery on sectoral performance in Nigeria, using the time series data from 1975 to 2010. The empirical analysis rests on the Dutch Disease (DD) hypothesis and also combines several procedures in modern econometric estimation techniques. The findings show that oil discovery in Nigeria affects both the agricultural and industrial sectors. However, the effect on the agricultural sector is larger than that on the industrial sector, thus, confirming the existence of DD in Nigeria. The study therefore recommends that the government should give priority to the agricultural sector through the provision of infrastructures, incentives in the form of subsidies, and general modernization of agricultural activities.

Nigeria is regarded as one of the world’s most populous black nation and the largest black nation market. Nigeria is a large country both in terms of geographical land mass (923,773 km) and population (about 150 million people) (NPC, 2006). Nigeria is naturally endowed and hence is an agrarian country. This agricultural potential was what Nigeria exploited in the pre-independence and the post-independence period prior to 1975, which gave it its leadership position internationally in the production and export of agricultural products like cocoa, groundnut, palm produce, rubber, cotton, timber, hide and skin, etc. In the 1960s, Nigeria was the world’s largest exporter of groundnut, the second largest exporter of cocoa and palm produce, and an important exporter of rubber, cotton and hides and skin. In real terms, in 1970, the country produced 305,000 tons of cocoa, 800,000 tons of palm oil and kernel and over 1 million tons of groundnuts. Well over 50% of the country’s total export earnings came from the agricultural sector prior to the 1970s (CBN, 2000). Furthermore, the agricultural sector accounted for about 50% of the Gross Domestic Product (GDP) and employed about 72% of the labor force on average between 1960 and 1970. Other than this, it was the supplier of food grains for the country’s growing population, provided raw materials to both agro-allied and non-agro-allied industries and many more advantages were provided by it during this period to the country, thus making it the mainstay of the then Nigerian economy (CBN, 2000).

During the 1970s, the instability in the Persian Gulf led to an increase in Nigeria’s export quota of crude oil and coupled with the fourfold rise in the per barrel price of crude oil, revenue inflow to the country increased significantly. From this period, the oil sector continued to contribute about 80% of the country’s annual revenue and 90% of the country’s annual export earnings. In fact, between 1992 and 2003, the only year when the sector’s contribution to the total export earnings fell below 97% was in 1998 when it was 95.5% of total export earnings. Hence, the agricultural sector was overthrown as the mainstay of the Nigerian economy by the oil sector during the period after 1975 (CBN, 2000).

Applied Economics Journal, Dutch Disease, Oil Discovery, Sectoral Performance in Nigeria, National Bureau of Statistics.