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This research work was conducted to investigate the impact of the oil industry on the economic growth performance of Nigeria. In the process of the research, the ordinary least square was (OLS) regression technique was employed. Considering the impact of time on the changes in economic variables, the analysis was carried out using the simple regression method in which the Gross Domestic Product (GDP), proxy to economic growth, was used as the dependent variable. While the oil revenue (OREV) and Exchange Rate (EXCH) are the independent variables. However, the unit root test was conducted using Augmented Dickey Fuller to test for the stationality of the variables. The result shows that GDP is stationary and the independent variables are non-stationary. The researcher also used Engel and Granger to show if the variables are cointegrated or not. From the result, since Tca l< Ttab at 5% critical value, we accept the null hypothesis that it is non-stationary and integrated of order one. Thus, we conclude that the variable is not cointegrated. The OLS result, shows oil revenue and exchange rate have a positive or direct relationship with Gross Domestic Product (GDP) in Nigeria. This implies that the higher the oil revenue and exchange rate, the higher the level of economic growth. The researcher therefore, recommends that government should formulate appropriate policy mix that would motivate the firm in the oil sector to enhance improved performance and contribution of the sector.
1.1 BACKGROUND TO THE STUDY
Oil was first discovered in Nigeria in 1956 at Oloibiri, Bayelsa state in the Niger Delta by shell-BP after half a century of exploration, and in 1958 Nigeria joined the rank of oil producers when its first oil field came on stream.(Azaiki &Shagary 2007). Since then, Oil revenue began to play a prominent role in the Nigerian economy. In resent time oil has been the major source of energy for the households and industries in Nigeria and in the whole world. Oil being the mainstay of the Nigerian economy plays a vital role in shaping the economic and political destiny of the country. The oil industry began to play a prominent role in the economic life of the country Nigeria (Fashola 1999). Nigeria is Africa’s highest oil exporter and the world’s tenth largest oil producing country It has realized over US$ 600 billion in oil revenues since 1960, and is currently the 5th highest net oil exporter in the World (CIA The world fact book, 2015). Nigeria’s economy is heavily dependent on natural resources; oil and gas constitutes 98%of total exports, 80% of government revenues and about 20% of GDP (CBN, 2010). In spite of the enormous economic potentials in Nigeria, it has largely failed to live up to the ambitious growth projections that followed the first oil boom in the 1970s (Bawa& Mohammed 2007). According to Anyanwu, et al (1997) Petroleum has transformed poor nations into rich ones, deserts into watersheds and bankrupt nations into creditors. Specifically, with respect to Nigeria, there is no gain saying that the oil sector has undergone tremendous transformation over the years. The industry which was merely the “supportive” economic sector in the 1960’s with agricultural sector as the dominant one turned to be the predominant source of Nigeria’s foreign exchange earnings and most viable access to international investment opportunities in the 80’s and 90’s, no other resources in Nigeria has played such a great role over the national economy as crude oil. The revenue derived from oil through tax and royalties has been used to carry out development projects in the country (Iyoha 2000). Basically before the advent of oil, Nigeria was entirely an agrarian economy endowed with both labour and material resources which includes abundant water resources, potential productive land for agricultural production and related activities due to high range of climate, vegetation and good soil condition Otaha (2012). In the pre-independence era, the contribution of the agricultural sector to the Gross Domestic Product surpassed every sector in the economy (Bawa 2007). The petroleum industry on the other hand has brought unprecedented changes to the Nigerian economy particularly in the past five decades when it replaced agriculture as the cornerstone of the Nigerian economy (Bawa (2007). The oil industry has risen to the commanding height of the Nigeria economy, contributing the lion share to Gross Domestic Product and accounting for the bulk of federal Government revenue and foreign exchange earnings since 1970 Baghebo (2013). However, Nigeria’s endowment in fossil fuel has not translated into a sustainable economic performance (Adeleke 1988). There was an extensive exploration and export of petroleum products in 1970s and strong neglect of agricultural base in favour of an unhealthy dependence on oil for more than 97% of export earnings and 80% federal revenue (United States Department of States, 2005).
The Nigerian economy is still faced with different challenges because of infrastructural decay, unstable power supply, absence of pipe-borne water and deplorable state of highways (Adeleke 1988).The economy is the backbone of any nation. Nigeria, like other development countries of the world is paying more attention on how to accelerate the rate of development through the various sections of the economy. Oil, a very versatile and flexible non-productive, depleting, natural (hydrocarbon) resource is a fundamental input to modern economic activities providing about 50% of the total energy demanded in the world excluding the former centrally planned economy. Oil exploiting countries of the world depend heavily on oil revenue for foreign exchange earnings and for the government budget, in most cases, reaching 90% or above.
Petroleum or crude oil is an oily bituminous liquid, consisting of a mixture of many substances mainly the elements of carbon and hydrogen, and thus known as hydrocarbon. It also contains a very small amount of non-hydrocarbon element, chief amongst which are sulphur, nitrogen, and oxygen. Petroleum industry covers the exploration and production of crude oil as well as petroleum refining, marketing and servicing. Specific policy objectives with respect to petroleum and mining can be summed up us follows. Active government participation in mining
1.2 STATEMENT OF THE PROBLEM
The over–dependence on oil has created vulnerability to the vagaries in the progressing section that shows the contribution of oil to some macroeconomic variables. The contradiction is more external earning for Nigeria, and also increased tax burden on imported refined petroleum products.
Some scholars have advocated for the shifting of emphasis from the oil industry to other sectors owing to their belief in the negative fallouts of the oil industry; some others opined that the sectors should be promoted and developed for its benefits. These opposing views have created the problem of acceptance or otherwise of the oil industry in Nigeria.
1.3 RESEARCH QUESTION
1.4 OBJECTIVES OF THE STUDY
With the development of petroleum in the Nigerian economy, there has been a growing interest and concern towards its contributions to the economy and economic growth. By the end of the research the study aims at achieving the following objectives.
To find out the impact of oil revenue (oil sector) on gross domestic product (GDP) in Nigeria.
To find the relationship between oil revenue and economic growth.
1.5 STATEMENT OF THE HYPOTHESIS
The following hypothesis will be tested in this study:
Ho: Oil Revenue has no effect on the economic growth in Nigeria
H1: Oil Revenue has a significant effect on the economic growth in Nigeria
1.6 SIGNIFICANCE OF THE STUDY
The study will be beneficial to the following:
1.7 SCOPE AND LIMITATIONS OF THE STUDY
This research work is an investigation into the impact of oil industry and the macroeconomic performance on economic growth of Nigeria (1981-2015).
In carrying out this research work, the researcher may encounter some difficulties. The first of such constraints or difficulties concerns data collection from different sources. Also the reluctance of some library or Liberians to make data available.
Apart from the above mentioned constraints which are capable of adversely affecting the accuracy of the results of this research work, all other errors and omissions are entirely those of the researcher.
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