Growth prospects of oil and gas abundant economies: the Nigerian experience (1970‐2000)

Purpose - This paper seeks to explore the factors behind the slow growth of economies with abundant oil and gas resources, despite the opportunities these resources potentially represent. Design/methodology/approach - The building blocks of standard economic growth models and the implication of natural resource utilisation is the methodological and analytical approach adopted. A qualitative analysis of the impact of oil and gas activities on the growth of the Nigerian economy is carried out using relevant macroeconomic indicators. Findings - The oil and gas sector is imbued with enormous linkage potentials that can stimulate other sectors to generate endogenous growth. Emphasis on the extraction and export of oil and gas subverts technological progress, stifles the revenue earning potential of the economy and stultifies the effectiveness of factors of production, thereby retarding economic growth. Research limitations/implications - Data on technological input into oil and gas activities could not be obtained, but the changing pattern of productive capacity, especially in the downstream sub‐sector, is used as a measure of technological change. Practical implications - Oil‐ and gas‐abundant economies can exploit potential comparative advantage by creating favourable conditions in value‐adding oil and gas activities. Through spill‐over effects a wide range of economic activities evolves, with concomitant market expansions. Positive externalities for learning‐by‐doing arising from this process can lead to endogenous technological progress to drive sustainable economic growth. Originality/value - The findings show that rather than reliance on foreign exchange revenues from oil and gas, creating the appropriate conditions for the effective domestic utilisation of oil and gas resources to bolster inter‐sectoral linkages is a more virile strategy for oil‐and‐gas driven economic growth.