Abstract
The paper seeks to examine the relationship between oil consumption and economic growth in Nigeria using the Johansen and Juselius Co-integration technique based on the Cobb-Douglas production function to construct three models by introducing three major sectors of oil consumption of Nigeria (Transport, Power and Industrial sector oil consumption) and how Nigerian's upward review oil price variable impact on GDP. ADF (1979) and Johansen Maximum Likelihood method of cointegration (1988) are used to test the order of integration, Long run and short run dynamics between variable respectively using annual data since 1970-2016. The study shows an evidence of the long run and dynamic relationship for all the variables except industrial oil consumption and oil price variables which has no short run impact on GDP. Also it was found that capital and labour are more important in affecting output growth compared to energy consumption Oil prices impacting real GDP negatively in long run but positively in short run. Prominent policy recommendation are, in order to sustain high economic growth in the long-run, the country needs to increase the efficiency of its workforce and expand its saving capacity to generate more capital and need to strengthen the effectiveness of energy generating agencies by ensuring periodic replacement of worn-out equipment in order to drastically curtail transmission power losses.
Highlights
The oil sector is a key sector in the Nigerian economy
Time series approach is used in the study to test the long run and short run dynamics through Johansen approach of co integration firstly Augmented Dickey Fuller (ADF) test for finding order of integration I (d)
Three models of CobbDouglas production function are constructed for three major oil sectors including oil prices depending on Gross domestic product (GDP)
Summary
The oil sector is a key sector in the Nigerian economy. This is because; the revenue from oil is the major growth factor in the Nigerian economy. Nigeria is a mono-product economy, remains susceptible to the movements in international crude oil prices it is contends that oil plays a critical role in Nigeria in the conduct of fiscal and monetary policies because it Alexander Abraham Anfofum et al.: Oil Consumption and Economic Growth in Nigeria: A Multivariate Cointegration Analysis accounts for average of 80% of government revenue, 90-95% of the foreign exchange earnings and 12% of the real gross domestic product Despite such windfall, Nigeria has an increasing proportion of impoverished population and experienced continued stagnation of the economy (OkonjoIweala and Osafo-Kwaako, 2007). Since the discovery of oil, the Nigerian nation has depended too heavily on the capital intensive oil sector which contributes 20 percent to the GDP, 95 percent of the foreign exchange and 65 percent of budgetary revenue (Sunday Tribune, July 1, 2007:9)
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