Impact of Oil Dependence on the Nigeria’s Economic Growth

Crude oil is a product with an unlimited value. Its benefit is not substitutable in virtually all the economic sectors of the presents century as of yet. This is why it has a relatively inelastic demand. It is also believed that crude oil instigates overall development and stirs economic growth for economies that are fortunate enough to be possessed with such resource. Notwithstanding recent empirical studies in this area has revealed that resource poor countries grow relatively faster than resource rich countries and that there is a negative correlation between resource dependence and economic growth. This study aims to capture the effect of oil dependence on the Nigeria’s economic growth from 1973 to 2013. Applying the ARDL bounds testing co-integration procedure, the oil rents ratio to GDP was used as a proxy for oil dependence and a significant negative correlation was discovered between oil dependence and GDP per capita, which was robust to the specification employed. The export sector value added had an insignificant negative correlation with GDP per capita in the long run, this is due to the high level of dependence on oil. Thus validating the presence of Dutch disease in the Nigerian economy. The study suggested the expansion of Foreign Direct Investment and sterilization of oil rents overseas by fostering Incentives so as to reduce the oil price shocks and the negative effects of crude oil prompted capital inflow in the Nigeria’s economy. Keywords: oil dependence, Economic growth, Nigeria, comparative advantage, Natural resources, GDP.