THE IMPACT OF OIL EXPORT ON ECONOMIC GROWTH IN NIGERIA (1981-2014)

ABSTRACT

The crude oil industry is a major sustaining sector of the Nigeria economy, and should not be neglected because it either directly or indirectly aids the productivity of the sectors

The study examine the impact of oil export on the Economic growth in Nigeria, from 1981 – 2014. the objectives of the study are; to examine the effect of oil export on GDP .and  To examine the impact of increase in the oil exports trend from 2001 on the Nigerian  Economy. Thus, economists observed that the the variables have unit root at levels. This study with the aid of OLS and co-integration method used shows the relevance of  oil export  to the growth of the economy. The findings confirm that there is positive and significant relationship between oil export and Economic Growth. Following the findings,   Since oil exports was found to have positive and significant relationship with GDP, it is recommend that the government should build more  equipped refineries and reduce the cost of refining crude oil, This will increase returns from oil exports an d therefore increase GDP. Government should boost the security on the high sea where crude oil exports are smugged.This will help reduce the loss of crude oil,and also increasing Economic growth..

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

1.0       Background of Study

Exports are a function of international trade whereby goods produced in one country for future sale. Exports are of two type which includes; Visible and Invisible export. Visible export are tangible commodities and can be seen and touched example palm oil, cotton and rubber while Invisible export are intangible commodities that cannot be seen and touched such as services. Crude oil is naturally occurring, unrefined petroleum products composed of hydrocarbon deposits and other organic materials. The raw material crude oil can be refined to produce useable products such as gasoline, diesel and various forms of petrochemicals. Crude oil was made naturally from the decaying plants and animals living in ancient seas million of year ago. Crude oil is dark in colour, viscous and foul smelling liquid. Cr

ude oil can be used for petrol example;  for aeroplane, motor vehicle etc .Kerosene which serves as fuel for jet aircraft and for oil field for domestic heating, diesel oil for generator and waxes for making Vaseline.

Economic growth refers to an increase in value of goods and services produced in a country. Growth implies an increase in real GNP per unit of labor input, this refers to changes in labor productivity over time. Economic Growth is conventionally measured as the rate of increase in Gross Domestic Product (GDP) usually calculated in real terms (netting out the effect of inflation on the price of the goods and services product)

Exports play an important role in promoting economic growth through supplying the state budget with earnings and foreign currency that can be used for improving infrastructure and creating an attractive investment climate Moshen (2015). According to Afolabi (2011) “Nigeria economy is basically an open economy with international transactions constituting an important proportion of her aggregate economic activities.

With the discovery of crude oil, the structure of the Nigerian economy changed from the dependence on primary product to dependence on Agriculture. Crude oil became the main source of revenue to the Nigeria economy thereby causing a structural change in employment, whereby people migrate from villages to town for better jobs and to pertake for the windfall of oil revenue.

Also before the change in the structure of Nigeria economy, Agriculture was the source of wealth, income, job people where employed through Agriculture but with the discovery of crude oil production in commercial quantities changed the structure of the Nigerian economy (Odularu 2008). This led to the neglect of agricultural product, making the economy to depend heavily on production of crude oil. In 2000, oil and gas export accounted for more than 98% of export and about 83% of federal Government Revenue (Odularu 2008). Nigeria’s proven oil reserves are estimated to 35billion barrels, Natural gas reserves are 1000 trillion (2,800kmi) and its crude oil production was around 2.2million barrels (350,000mi) per day (Odularu, 2008).

Moreover, the oil and natural gas export generated huge revenue to the government as It was reported that 80% of Nigeria’s revenue goes to the government, 16% spent on administrative expenses and 4% go to investors. The huge revenue from oil export only benefit 1% of the population due to corruption in Nigeria (Odularu, 2008).

Though oil did not assume its present significant position in the national economy until the early 1970’s, it is well known that it has since become the backbone of contemporary Nigeria’s economy. Petroleum either as petrol, diesel, fuel oil, lubricant or petrochemical makes Nigeria economic wheel go round. Nigeria in the 1970s adopted the import substitution strategy in her quest to achieve economic growth and development, but the strategy failed to deliver due to a number of factors which include lack of local technical capacity, lack of local manpower to manage the industries, and poorly drafted technical agreement.

Thus this study sets to investigate the impact of oil exports on economic growth in Nigeria.

1.1 Statement of the Problem

Exports can play an important role in promoting economic growth through supplying the state budget with earnings and foreign currency that can be used for improving infrastructure and creating an attractive investment climate Moshen (2015).Crude is no doubt a predominant source of Nigeria’s revenue and foreign exchange; this is evidenced by the total oil revenue generated into the Federation Account from 2000 to 2009 which amounted to N34.2 trillion while non-oil was N7.3 trillion, representing 82.36% and 17.64% respectively. The mean value of oil revenue for the 10 year period is N3.42 trillion compared to non-oil revenue at N732.2 billion (Baghebo and Atima, 2013). There is no doubt that various governments in Nigeria recognize the strategic role of exports in achieving economic growth and development, and have made conscious effort to create a strong export base for the Nigerian economy Ewetan and Okodua (2013). Despite the said government efforts and huge oil earnings since 1960 which is put at about $300 billion (Baghebo and Atima, 2013) argued that these earnings have not translated to meaningful economic growth and development but regrettably contributed to the neglect of the agricultural sector which provided the bulk of foreign exchange earnings before oil was discovered, thus making Nigeria a classic illustration of the Dutch Disease phenomenon.

Since early 1970, the government has annually received over half of its revenue from oil sector which are about 85%. This oil revenue are only large but highly volatile and causing the size of government programs to fluctuate accordingly. From 1972 to 1975, government spending rose from 8.4% to 22.6% of gdp, by 1978, it dropped back to 14.2%. This fluctuation has made the government unable to adhere to prudent fiscal policy during the 1970s and 1980s, when oil price fluctuated sharply, the ability of the government to spend their fund wisely and limit corruption has been low.  The GDP growth rate recorded negative growth in the early 1980s (-1.053 in 1982, -5.05 in 1983 and -2.022 in 1984). The growth rate increased steadily between 1985 and 1990 but fell sharply in 1986 and 1987 by -8.754% and -10.752%. Except in 1991 when the growth rate was at 2.206% was recorded, 1990s witnessed an unstable growth. However, the growth rate has been relatively high since 2000, IMF (2015)

 

From the graph above, it can be seen that oil exports have been on the increase since the period of 2001 and this was accompanied by an increase in GDP during the period too and this shows a positive co-movement between oil exports and GDP. From the year 2001, this project will first try to determine if there are any effects – sign and magnitude – of oil exports on the Nigeria’s economy. Also, the project will place particular emphasis on the period 2001, where the trend of oil exports began to consistently rise and deviate from the trend of 1981 to 2000, to see if this consistent rise in oil exports, within the period 2000 to 2014, has had any effects on the existing (and possibly non-existing) relationship between oil exports and the Nigerian economy.

• RESEARCH QUESTION

The above question thus gives rise to the following research question

• To what extent has oil exports affected the Nigerian GDP?
• Does the increasing trend in oil exports beginning from 2001, have any impact on the oil export – GDP relationship

1.4       RESEARCH OBJECTIVES

The main objective of this study is to examine the impact of oil export on economic growth in Nigeria; the specific is however stated as thus;

• To examine the effect of oil export on GDP.
• To examine the impact of the increase in oil exports trend from 2001on the Nigerian Economy
  • RESEARCH HYPOTHESIS

1. H₀: oil export does not have any significant effect on GDP.
2. H₀: Increase in oil exports trend from 2001 have no significant impact on Nigeria’s GDP.

1.6       SIGNIFICANCE OF STUDY

In the early 1970s, despite the growing impotance of oil,the non oil sector mainly Agriculture was the  backbone of the economy,accounting for over 42pre cent of commodity export earnings and about 74 per cent of total revenue . By the end of the 1970s,however,the petroleum sector had taken over dominance of the economy,accounting for over 90 per cent  of export earnings and more than 80 per cent of government revenue(CBN,2010).

The study is important for several reasons. To the government, it will provide  policy formulation on how well to manage oil resources and revenue from oil to foster economic growth and developmemt. To development agencies, it will provide necessary information for regulating the industry.To Researcher or students,it will provide an updated reference material for further research since it adds to existing literature on the subject.

 

1.7      SCOPE AND LIMITATION OF THE STUDY

This research work is an investigation into the impact of oil export on economic growth in Nigeria (1981-2014).In carrying out this research work,I encounted some difficulties.The first of such constraints or difficulties was data collection from different sources.Also was the attitudes or the reluctance of some liberians to make datd available.Apart from the above mentioned difficulties,which are capable of adversely affected the accuracy of the results of this research work,all other errors and omissions are entirely those of the researcher(me).