Crude Oil Revenue, Institutional Quality and Economic Growth Nexus in Nigeria: An Augmented ARDL Cointegration Approach and Toda-Yamamoto Causality Test

Abstract

Although there is a number of research that deals revenue- growth, institutional quality growth nexus, but little has been done to study the impact of crude oil revenue and institutional quality on economic growth in Nigeria. This study examines the impact of crude oil revenue and institutional quality on economic growth in Nigeria from 1996:Q1 to 2020:Q4. Using Augmented Autoregressive Distributive Lag bound testing approach and Toda- Yamamoto causality test. The result of the bounds test revealed that there is the long run relationship between crude oil revenue, institutional quality and economic growth in Nigeria. Furthermore, crude oil revenue has positive and significant impact on economic growth in the long run. The result also demonstrates that institutional quality (control of corruption) has a negative effect on economic growth in Nigeria in both short run and long run and is statistically significant. This result support ‘Grease the wheels’ hypothesis which shows that corruption has contributed to the growth of the Nigerian economy by reducing bureaucratic incompetence which create obstacles to investment and economic growth. Furthermore, the results of the Toda-Yamamoto causality test revealed that there is bi-directional causality between crude oil revenue, institutional quality and economic growth in Nigeria. This study recommends Government policies to improve the quality of its institutions so as to ensure efficient utilization of crude oil revenue such will boost economic growth in the country.