Abstract
In this paper, the Theil index was utilized to study the impact of macroeconomic variables on diversification in Nigeria for the period 1981-2015, using the bounds test approach to cointegration on data generated from secondary sources. Cointegration was found to exist between the economic diversification indicators and associated variables. We also found that capital formation, real effective exchange rate, domestic credit to private sector and foreign direct investment promote diversification. Government efforts in Nigeria should be geared towards diversifying the economy using oil revenue, promote foreign direct investment in the non-oil sector, provide fixed capital, encourage the flow of credit to the private sector, and implement a cautious exchange rate regime.
Highlights
Export diversification becomes imperative for Nigeria in order to improve its productive base to ensure diversified sources of revenue required for the country’s development
Diversification was proxied by the Theil index, decomposed into intensive and extensive margins
Cointegration was found between the economic diversification indicators and the macroeconomic variables used in the study
Summary
Export diversification becomes imperative for Nigeria in order to improve its productive base to ensure diversified sources of revenue required for the country’s development. A more restrictive trade regime came into force in 1982 when the Economic Stabilisation Act was promulgated. This resulted in increases in tariffs on certain commodities, and more stringent foreign exchange regulations until 1986, when the country introduced the Structural Adjustments Programme (SAP). The structural transformation of Nigeria was the focus of economic policy after SAP and efforts were geared towards shifting away from total dependence on oil. This period was marked by reforms in exchange rate regime, and the introduction of guided deregulation in 1995
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