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Crude oil dependence, deindustrialization and economic growth in Nigeria

Author

Listed:
  • George Ike

    (Eastern Mediterranean University.)

  • Henry Okodua

    (Covenant University)

  • Kemal Bagzibagli

    (Eastern Mediterranean University)

Abstract

Crude oil is a commodity of very great value. Its utility in almost all the sectors of 21st century economies is not substitutable as of yet. That is why its demand is relatively inelastic. Crude oil as a natural resource is supposed to stir economic growth and propagate overall development for countries that are lucky enough to be endowed with this commodity. However recent and past empirical research in this area has shown that resource rich countries develop slower than resource poor countries and that resource dependence has a negative relationship with economic growth. One of the mechanism of transmission is through the crowding out of the manufacturing and agricultural sectors through the process of direct and indirect de-industralization. In light of these developments this research primarily aims to capture the relationship between oil dependence the manufacturing sector and economic growth in Nigeria. Utilizing the Autoregressive distributed lag bounds testing cointegration techniques a model was constructed, oil dependence was proxied as the ratio of oil rents to GDP and it was discovered that oil dependence had a significant negative relationship with GDP which is robust to the 2 specified models . Also the manufacturing sector had no significant relationship with GDP in the long run but had a positive significant relationship with GDP in the short run. This gives ample evidence to the existence of the dutch disease in Nigeria. The study recommended the sterilization of oil revenues abroad and the development of Foreign Direct Investment through the fostering of Incentives to multinationals in order to reduce the negative impacts of crude oil instigated capital inflow and oil price shocks in the Nigerian economy.

Suggested Citation

  • George Ike & Henry Okodua & Kemal Bagzibagli, 2016. "Crude oil dependence, deindustrialization and economic growth in Nigeria," Proceedings of Economics and Finance Conferences 3205779, International Institute of Social and Economic Sciences.
  • Handle: RePEc:sek:iefpro:3205779
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    File URL: https://iises.net/proceedings/5th-economics-finance-conference-miami/table-of-content/detail?cid=32&iid=007&rid=5779
    File Function: First version, 2016
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    Citations

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    Cited by:

    1. Itaman, Richard E. & Awopegba, Oluwafemi E., 2021. "Finance, oil rent and premature deindustrialisation in Nigeria," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 149-161.
    2. Okoye, Lawrence Uchenna & Adeleye, Bosede Ngozi & Okoro, Emmanuel E. & Okoh, Johnson I. & Ezu, Gideon K. & Anyanwu, Felicia A., 2022. "Effect of gas flaring, oil rent and fossil fuel on economic performance: The case of Nigeria," Resources Policy, Elsevier, vol. 77(C).

    More about this item

    Keywords

    Bounds Testing; Co-integration; Crude Oil; De-industrialization ; Dutch disease; Economic growth.;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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