Rentierism—Political Instability Nexus: The Danger of Oil-producing Region Crisis in Nigeria

Abstract

The growing popularity of the rentier state theory has made the focus on the impact of oil rents on political stability central for revealing how natural resource (including oil) windfalls link to the weakness of institutional quality in any resource-rich economy. Considering the core characteristic of a rentier state (such as Nigeria)—a distributive political economy—the article examines how the stability of Nigerian political system can be affected by oil rents over the period 1996–2021. Through the adoption of autoregressive distributed lag (ARDL) bounds test to cointegration and vector error correction mechanism (VECM) for the test of long-run causality, the apparent effect of oil rents on Nigerian political development is reflected in the analyses and findings. Empirical evidence supports the oil impedes political stability assertion, as there is statistically valid negative association between oil rents and political stability in the short run and long run. It is demonstrated that oil wealth could offer greater incentives for civil conflicts, which have resulted in escalating political problems. In addition, the causality mechanism implies that the relationship found merely indicates association between oil rents and the level of political stability in the long term, and it is not causal. Thus, it is posited that through the adoption and implementation of sound policy measures, the escalation of conflicts would likely subside, especially in most oil-rich regions or states, whereas civil order could be promoted. It is, therefore, critical to enhancing fairness in the use and distribution of oil wealth, improving people’s welfare, particularly in the oil-producing communities and in general, ensuring that democratic principles in the management of resource windfalls are sustained. JEL: Q33, Q34, H56, H12