THE RELATIVE IMPACT OF OIL AND NON-OIL EXPORTS ON ECONOMIC GROWTH IN NIGERIA: 1983-2007

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ABSTRACT

The study is made up of two independent models, Gross Domestic Product (GDP) and Investment respectively. The independent variables Oil export, Non-oil export, Real exchange rate and Inflation rate were modeled to capture their effect on GDP and Investment respectively.

The study employed Log Linear Model. Following the empirical findings in this study, we observed that, Non-oil export have not contributed a lot to economic growth in Nigeria but other indicators exert enough pressure on the strength of the economy, evidence from the result of the first model. Judging from the result of the second model, Oil export proves a negative non significant variable with investment growth in Nigeria.

The study recommends appropriate economic policies, institutional reforms and massive political will for the country to address the issues of dwindling exportation of Non-oil sector and the trap of Dutch Disease associated with oil-dependency.

 

Pages

LIST OF TABLE

Unit Root Test for Stationarity ——————————————- 42

Co-integration Result —————————————————— 45

Modeling Log of Differenced GDP by OLS ————————— 45

Modeling Log of Differenced INV by OLS —————————- 46

Summary of t-statistic test for model 1 ———————————- 50

Summary of t-statistic test for model 2 ———————————- 52

 

 

 

 

 

 

 

 

TABLE OF CONTENT

Title page —————————————————————-        i

Approval page ———————————————————-        ii

Dedication ————————————————————–         iii

Acknowledgement —————————————————–         iv

Abstract —————————————————————–          v

List of tables ———————————————————–          vi

Table of content ——————————————————-          vii

CHAPTER ONE

• Introduction ——————————————————- 1

1.1 Background of study ———————————————                    1

1.2 Statement of problem ——————————————–           3

1.3 Objective of the study ——————————————-           5

1.4 Statement of hypothesis —————————————–           5

1.5 Significance of the study —————————————-           6

1.6 Scope and limitations of the study —————————–            6

CHAPTER TWO

2.1 Meaning of oil and non-oil exports —————————-           7

2.2 A brief historical perspective on oil in Nigeria ————–             7

2.3 Oil and economic policies in Nigeria ————————-             10

2.4 The Dutch-Disease ———————————————-            15

2.5 The boom and burst periods in oil sector and policy response —–17

2.6 Macroeconomic policies and structure of Non-oil export in Nigeria-22

2.7 Oil export, Non-oil export and Economic growth in Nigeria ——- 26

Empirical Literature—————————————————-29

CHAPTER THREE

Research methodology——————————————————–35

3.1 Model Specification——————————————————35

3.2 Method of Evaluation—————————————————-37

CHAPTER FOUR

4.1 Data presentation———————————————————41

4.2 Data Analysis ————————————————————44

CHAPTER FIVE

Summary, Conclusion and Recommendation—————————58

5.1 Summary——————————————————————58

5.2 Conclusion—————————————————————-61

5.3 Recommendation———————————————————62

BIBLIOGRAPHY———————————————————66

Appendix

 

CHAPTER ONE

                                  INTRODUCTION

1.1THE BACKGROUND OF THE STUDY

Oil, a very versatile and flexible, non-reproductive, depleting, natural (hydrocarbon) is a fundamental input into modern economic activity, providing about 50% of the total energy demand in the world. (Anyanwu J.C. et al, 1997)

Petroleum or crude oil is an oily, bituminous liquid consisting of a mixture of many substances, mainly the element of carbon and hydrogen known as hydrocarbons. It also contains very small amounts of non-hydrocarbon elements, chief amongst which are sulphur (about 0.2 to 0.6% in weight), then nitrogen and oxygen. (Anyanwu J.C. et al, 1997)

Non-oil exports comprises of agricultural products, solid mineral, textile, tyre, manpower, etc. it is made up of every other thing we export, except petroleum products. In the decades of the 1960s and 1970s, the Nigeria economy was dominated by agricultural commodity exports. Such commodities include cocoa, groundnut, cotton and palm produce. From the mid 1970s, crude oil became the main export produce of the Nigerian economy. (Anyanwu J.C. et al 1997)

The development of the petroleum (oil) industry in the country began in 1909. It started with exploration activities by the German Bitumen Corporation, but their search for oil seized after the First World War because the Germans started the war and lost in the war. With Nigeria being under British sectorial control, it was only natural that the Germans had to stop their exploration activities.

In 1937, an oil prospecting license was granted to shell D’Arcy Exploration parties. The first commercial discovery of crude oil in Nigeria was made in 1956 by shell at Oloibiri. The company started production and in 1961 the Federal government of Nigeria issued ten oil prospecting licenses on the continental shelf to five companies. Each license covered was subject to the payment of N1 million. With this generous concession full-scale on-shore and off –shore oil exploration began.

Oil was found in commercial quantities at Oloibiri in the Niger delta, further discoveries at Afam and Boma established the country as an oil-producing nation. The Nigerian crude oil is described as a sweet type because of its lightness and its low sulphur content. It was largely sought-after in the international oil market.

The global perception of Nigeria is that of a really blessed oil producing nation, but with a growing poverty index. (Maaji Umar YAKUB, 2008). The problems of low economic performance of Nigeria cannot be attributed solely to instability of earnings from the oil sector, but as a result of failure by government to utilize productively the earnings from the export of crude oil from the mid 1970s to develop other sectors of the economy. Nigeria is among the poorest countries in the world, with the poverty incidence estimated at 54% in 2006. The economy has been substantially unstable, a consequence of the heavy dependence on oil revenue and the volatility in its prices. The oil boom of the 1970s led to the neglect of non-oil tax revenue, expansion of the public sector, and deterioration in financial discipline and accountability. In turn, oil-dependency exposed Nigeria to oil price volatility which threw the country’s public finance into disarray.

This study will examine the relative impact of oil and non-oil export on economic growth in Nigeria.

 

• STATEMENT OF THE PROBLEM

Oil is a major source of energy in Nigeria and the world (in general). Oil being the mainstay of the Nigerian economy plays a role, vital role in shaping the economy and political destiny of the country. It was towards the end of the Nigerian civil war (1967-1970) that the oil industry began to play a prominent role on the economic life of the country.

Non-oil product on the other hand plays an important role in the economic growth and development of the country. Non-oil exports, especially agricultural product like groundnut, palm oil, cotton, natural rubber, coffee, gum Arabic, sesame seed, etc. was our main stay before the period of the oil boom. It was during that period (that is, period of oil boom) that Nigerians neglected non-oil exports to an extent.

Nigeria can be categorized as a country that is primarily rural, that is, it depends on primary product export (especially, oil product). Since the attainment of independence in 1960 it has experienced ethnic, regional and religious tensions, magnified by significant disparities in economic, educational and environmental development in the south and in the north. This could be partly attributed to the major discovery of oil in the country which affects and is affected by economic and