Asymmetric Effect of Oil Revenue on Economic Performance in Nigeria: A Non-linear ARDL Approach

Abstract

Depending on the prevailing global or local economic situations, the instability in income from crude oil sales dictate the state of oil exporting economy, such as Nigeria. This is anchored to the fact that considerable proportion of the country’s total revenue comes from the oil sector. Thus, rise (positive change) and fall (negative change) in oil revenue may exert unequal influence on the Nigeria’s economic performance. Based on the foregoing, this research work investigates the asymmetric effect of income from oil on Nigeria’s economic performance between the period 1981 and 2020. The objective is to examine how economic performance reacts severally to rise and fall in oil revenue. Using time series analysis methodology, the study utilizes datasets on real GDP (a proxy for economic performance), oil revenue, exchange rate and inflation rate. The data were sourced from CBN Statistical Bulletin and World Development Indicators. The data analysis process includes stationarity test (using ADF test), bounds cointegration test, technique of estimation, using non-linear autoregressive distributed lag (NADRL) and post estimation tests. The findings reveal that positive change (increase) and negative change (decrease) in oil revenue exert the same direction (positive) but different magnitudes of impact on Nigerian economic performance in the long run. In other words, positive oil revenue change exerts positive impact on economic performance while negative oil revenue change exerts negative impact on economic performance. Essentially, both positive and negative oil revenue changes are real GDP inelastic, however, economic performance responds more to negative change (decrease) in oil revenue than the positive change (increase) in the long-run. Therefore, the study submits that the Nigerian government, through its concerned agencies in the oil sector, should design necessary strategies to curb oil theft such as adopting proactive measures against vandalism. Also, massive diversification into other sectors of the economy must be the government’s paramount consideration.