ABSTRACT
This study examines the effect of oil revenue on economic growth and development in Nigeria covering a period of 1986 to 2017. The variables used are petroleum profit tax, domestic crude sales and export sales as proxies for oil revenue being the independent variable whereas gross domestic product, inflation and unemployment as proxies for economic growth and development being the dependent variables. To achieve this objective, secondary data were collected from the CBN statistical bulletin, NNPC annual report and National Bureau of Statistics. The secondary data collected were analysed with relevant econometric tests of Breusch -Godfrey Serial Correlation LM, White Heteroskedasticity, Johansen Co-integration, and vector error correction model. the coefficient ECM is -0.012, which is correctly signed and has a prob value of 0.004 which is greater than 0.05, this implies that there is a short run relationship running between Economic growth and oil revenue in Nigeria. The coefficient of Petroleum Profit Tax is 0.861, this signifies that Petroleum Profit Tax has a positive impact on Economic growth of Nigeria The results from the analyses shows that, petroleum profit tax ,domestic crude and export sales have positive significant impact on gross domestic product and inflation rate whereas petroleum profit tax , domestic crude and export sales has negative impact on unemployment rate.
On the basis of the empirical analysis, the researcher concludes that oil revenue significantly affects the economic growth and development of the country. The researcher therefore recommends that government should consider developing the sector instead of leaving it in the hand of foreign explorers. This will enables the country to benefit more from the sector. They should encourage local participation as this will create more employment opportunities and also put necessary law in place to guide the operation of the sector so as to reduce the level of evasion by petroleum exploration companies in Nigeria.
TABLE OF CONTENTS
Title
page i
Certification ii
Declaration
iii
Dedication
iv
Acknowledgement v
Table
of content vi
Abstract vii
CHAPTER 1: INTRODUCION
1.1
Background to the Study
1
1.2 Statement of the Problem
3
1.3 Objectives of the
Study 4
1.4 Research Questions
5
1.5 Research Hypotheses
5
1.6 Significance of the Study 5
1.7Scope
of Research
6
1.8
Operational Definition of terms 7
1.9Limitation
of study 8
CHAPTER
2: LITERATURE REVIEW
2.1 Conceptual
Framework 9
2.1.1 Oil revenue in Nigeria
12
2.1.2 Contributions by the oil
industry 13
2.1.3 Challenges
in the oil sector 16
2.1.5 Oil
licenses in Nigeria 17
2.1.6 Fiscal
arrangements 19
2.1.7 Sources
of oil revenue
22
2.1.8 Nature
and structure of the Nigerian economy 27
2.1.9 Challenges
facing the Nigerian economy 28
2.1.10 Economic
growth in Nigeria 32
2.1.11 Inflation 36 2.2
Theoretical Framework
2.2.1 The resource curse theory 37
2.3
Empirical Review 38
CHAPTER 3: METHODOLOGY
3.1
Research Design 55
3.2
Types and Sources of Data
Collection 55
3.3
Model specifications 56
3.4 Data
Analysis Techniques 57
3.5 Validation
Techniques to be employed 57
3.6
Description of Research Variables 58
CHAPTER
4: DATA PRESENTATION, ANALYSIS AND DISCUSSION OF RESULTS
4.1 Data Presentation: 61
4.2 Data Analysis 64
4.3 Test of Hypotheses 67
4.4 Discussion of Findings 77
CHAPTER
5: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of findings 79
5.2 Conclusion
79
5.3 Recommendations
80
5.4 Further Research
81
References
82
Appendices
88
CHAPTER
1
INTRODUCION
1.1 BACKGROUND
TO THE STUDY
The petroleum industry in Nigeria is the
largest industry, which has provided approximately 90 percent of foreign
exchange earnings and about 80 percent of federal revenue (Oremade, 2006).
Ogbonna (2011) opined that dominant theories of economic growth have suggested
that significant relationship exists between national income and economic
growth. Appah and Ebiringa (2012) are of the view that the petroleum sector is
one of the most important sectors in Nigeria as the sector generates the
highest amount of revenue to the Federal, State and Local governments in the
country.
Ogbonna and Appah (2012) observed that the petroleum industry constitutes the
major source of income and occupies a strategic position in the economic
development of Nigeria. Furthermore,
Petroleum has transformed poor nations into rich ones, desert into watersheds
and bankrupt nations into creditors (Anyanwa,1997). Specifically, with respect
to Nigeria, there is no gain saying that the oil sector has undergone
tremendous transformation over the years.
Ibeh (2013) states that although oil did not
assume its present significant position in the national economy until the early
1970s, it is not a novel revelation that it has since become the mainstay of
contemporary Nigerian economy. The revenue from Petroleum as petrol, diesel,
fuel, oil, lubricant or petro-chemical makes Nigeria’s economy’s wheel goes
round.
Similarly Yakubu (2008) suggests that income
from a nation’s natural resources (e.g. petroleum) has a positive influence on
economic growth and development.
Contrary to these opinions expressed above,
other studies on this subject matter, found that natural resources income
influence growth negatively. That is, an increase in Income from natural
resources does not necessarily result in an increase in economic growth. For
example, Sachs and Warner (1997) using a sample of 95 developing countries that
included Indonesia, Venezuela, Malaysia, Ivory Coast and Nigeria, found that
countries that have a high ratio of natural resource exports to GDP appeared to
have shown slower economic growth than countries with low ratio of natural
resource export to GDP. Furthermore, Collier and Hoeffler (2002) were of the
opinion that increase in natural resources income does not result in increase
in economic growth. This is so because they found that 23.0 per cent of
countries that are dependent on oil exports are likely to experience civil war
in any five-year period compared to 0.6 percent for countries without natural
resources. During each of these periods, there was no economic growth. Yakubu (2008),
also supports the argument that increase in natural resources income does not
result in increase in economic growth but results in vicious development cycle
(i.e. violent and adverse development).The researher point to the potential
benefits of enhanced economic growth and the creation of jobs, increased government
revenues to finance poverty alleviation, the transfer of technology, the
improvement of infrastructure and the encouragement of related industries. But
the experience of almost all oil-exporting countries to date, especially
Nigeria illustrates few of these benefits (Terry, 2000).
To say the least, Nafziger (2003) says that
Nigeria’s case is increasingly degenerating to a state of chaos as petroleum
income is brazenly mismanaged while the basic national institutions such as
electricity, energy, road, transportation, political, financial systems, and
investment environment have been decreasing and inefficient in Nigeria. The
infrastructure is still poor; talent is scarce. Poverty, famine, and disease
afflict many nations, including Nigeria,(Chironga, Leke and Lude, 2011).
It is evident from the opinions expressed in
the foregoing studies that petroleum income can cause an increase or a decrease
in economic growth and development of a nation, depending on the type of
theory, policy and practical implementation the government in power adopts as
expressed by Gbadebo (2008) ,that crude oil discovery has had certain impacts
on the Nigeria economy both positively and adversely. On the negative side, it
can be considered with respect to the surrounding communities within which the
oil wells are exploited. Some of these communities still suffer environmental
degradation, which leads to deprivation of means of livelihood and other
economic and social factors. Although large proceeds are obtained from the domestic
sales and export of petroleum products, its effect on the growth of the
Nigerian economy as regards returns and productivity is still questionable,
hence, the need to evaluate the relative impacts of oil revenue on the economic growth and development
of Nigeria.
1.2
STATEMENT OF PROBLEM
Despite the fact that crude oil has been the
source of Nigerian income, the economy
is facing high rate of unemployment, wide spread oil spillage, increasing poor
standard of living as a result of decreasing gross domestic product, high rate
of inflation and high level of interest rate which has led to the effect of the
economic development.
The problems with Nigerian economy even to
the present have been traced to failure of successive governments to use oil
revenue and excess crude oil income effectively in the development of other
sectors of the economy which will reduce the unemployment rate. (Olatunji,
2014).
Over all, there has been poor performance of
national institutions such as power, energy, road, transportation, politics,
financial systems, and investment environment have been deteriorating and
inefficient (Nafziger, 2003).
The multinational companies operating in
Nigeria are not committed to the country’s economic growth, since in most cases;
they evade taxes, notwithstanding the huge profit they report from operating in
Nigeria
Oladele (2013), states that high level of
poverty and low standard of living in Nigeria
has been blamed on the overdependence on the oil sector and also the
mismanagement of oil revenue by successive government ,this is evident in the
absence of the kind of infrastructural facilities, health and education services
that should benefit the citizens (Ibeh,2013). Some scholars like Nafziger and
Oladele have advocated for the shifting of emphasis from the oil industry to
other sectors owing to their belief in the negative fallouts of the oil
industry; some others opined that the sectors should be promoted and developed
for its benefits.
In view of the controversy with respect to
the relative contribution of the oil sector compared with other sectors, the
researcher intends to establish empirically the relative impact of the oil
revenue on economic growth and development of Nigeria.
1.3
OBJECTIVES OF THE STUDY
The main objective of this research is to assess
the impact of oil revenue on the economic growth and development of Nigeria.
While the specific objectives are to:
1.
examine the effect of oil revenue (crude oil
and gas export, domestic crude sales and
petroleum profit tax) on the gross domestic product,
2.
assess
the effect of oil revenue (crude oil and gas export, domestic crude sales and
petroleum profit tax) on inflation,
3.
determine the effect of oil revenue (crude oil
and gas export, domestic crude sales and petroleum profit tax) on unemployment.
1.4
RESEARCH QUESTIONS
Following from the specific objectives, the study answers the following
research questions:
1.
to
what extent does oil revenue (crude oil and gas export, domestic crude sales and
petroleum profit tax) affect the gross domestic product?
2.
to what
extent does oil revenue (crude oil and gas export, domestic crude sales and
petroleum profit tax) influence inflation rate?
3.
to what
degree does oil revenue (crude oil and gas export, domestic crude sales and petroleum
profit tax) affect unemployment rate?
1.5
RESEARCH
HYPOTHESES
In order to guide the study, the following
hypotheses were formulated and they include:
Ho1: Oil revenues (crude oil and gas export,
domestic crude sales and petroleum profit tax) have no significant effect on
gross domestic product;.
Ho2: Oil revenues (crude oil and gas export,
domestic crude sales and petroleum profit tax) have no significant influence on
inflation rate;
Ho3: Oil revenues (crude oil and gas export,
domestic crude sales and petroleum profit tax) have no significant effect on
unemployment rate.
1.6 SIGNIFICANCE
OF THE STUDY
The study is on the impact of oil revenue on
the economic growth and development of Nigeria from 1986 to 2017 which covers a
period of 32years. The findings of this study will be beneficial to the
investors, the oil industry, policy makers, government, and members of the
public, academicians and researchers in the following ways:
The result from this study will help the
investors in making decisions on where to invest their financial resources in
the oil sector.
This research work will be relevant to oil
companies operating in Nigeria especially Nigeria national petroleum
corporation in measuring the performance and assessing the level if impact the
oil sector has on the economy and also informed them in many of their
operational and investment decisions.
This will equally serve as a source of
information for the policy makers and stakeholders in the industry.
This work will also guide the government and
its agencies in regulating the industry. It will also help government to
transparently and judiciously invest oil revenue to set objectives which
enhance growth in the Nigerian economy.
The study
will provide members of the public knowledge on the importance of the oil
revenue so that the citizens especially those in the niger delta region to stop
vandalising the oil pipe lines.
The study will add to the existing
literature. It will serve as a source of information and reference material to
students for their research work.
The study will benefit other researchers as
it will form a base for further study on the subject matter.
1.6
SCOPE OF THE STUDY
This research work is an investigation into
the impact of oil revenue on economic growth and development in Nigeria. The
study was carried out on the oil sector /industry from (1986-2017) covering a
period of 32 years. The base year of 1986 was used as this was a year a major
economic reformation in Nigeria.
1.7
OPERATIONAL DEFINITION
Economic
growth: It is also the rate
of change in national output or income in a given period. Economic growth is
the increase of per capita, gross domestic product (GDP) or other measure of
aggregate income. It is measured as the rate of change in real GDP.
Gross
domestic product: GDP is
the change in the money value of goods and services produced in an economy from
period to period ie. year after year, irrespective of the nationality of the
people who produced the goods and services.
Petroleum
income: Petroleum Income refers
to the income earned from the sale of crude oil. It is also used synonymously
with oil revenue which include (crude oil and gas export, domestic crude sales
petroleum profit tax)
Petroleum
profit tax: Petroleum
profit tax involves the royalties paid and charging of tax on the incomes
accruing from petroleum operations.
1.9 LIMITATION
OF THE STUDY
The researcher encountered some limitations
in the course of carrying out this study, which were time constraint to
gathering of necessary data.
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