Abstract
The effect of natural resource extraction on regional and sub-national economic growth has only recently started to generate discussions in energy and regional economics literatures. This paper investigates this issue for the oil producing (Niger Delta) region in Nigeria using a panel data modelling framework. Empirical results from the analysis show no significant relationship between direct extractive activities on the internally generated revenue of each state. However, there is strong statistical evidence that show extractive activities impact positively on the total state level revenue - in the form of production-based derivation fund that accrues to oil producing states. In addition, the extractive activities positively and significantly affect each state’s gross domestic product and its disaggregated industries (petroleum and services). However, the impact of the natural resource extraction on the non-oil industry (manufacturing) is negative and not statistically significant. So, the results obtained renders inconclusive, the argument of a possible existence of the “resource curse” at the subnational level in Nigeria. Conclusively, natural resource extraction has positive significant impact on the economic performance of states in the oil-producing region, in contrast to the negative impact at the national level. The results bring to the fore, the need for diversification away from oil to other sectors – especially in within petroleum resource-rich regions/states of the Nigeria. The outcome of the study further highlights another policy issue of better managing oil-resource revenues towards achieving national economic goals including SDGs.
Highlights
There is considerable interest in understanding how natural resource extraction affects economic growth, as resource development influenced the industrial revolution in the 19th century
The regression models that control for internally generated revenue and gross state revenue show that the coefficient on the crude oil production variable is positive and statistically significant at 1% level, supporting the notion that petroleum extractive activities yields direct and indirect economic benefits at the state level in Nigeria
State Gross Domestic Product (SGDP): State gross domestic product, OLD: Ordinary least square resource coefficient for the gross state revenue model is higher at 0.424 which implies that a 1% increase in crude oil production, increases gross state revenue
Summary
There is considerable interest in understanding how natural resource extraction affects economic growth, as resource development influenced the industrial revolution in the 19th century. Natural resource exploitation has affected economic growth negatively in some developing mineral-exporting countries. The empirical evidence on this subject has revealed both positive and negative channels through which natural resource development can affect economic growth. There is evidence to suggest that petroleum resource exploitation positively affects economic outcomes and improves the welfare of a nation’s populace. This happens through job creation and revenue generation from exports and windfalls from price shocks expended on productive economic activities. Evidence of negative experiences reveal that natural resource development and dependence leads to deindustrialization and extreme rent-seeking behavior that further slows economic growth.
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