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AN ANALYSIS OF THE IMPACT OF PETROLEUM EXPORT ON
ECONOMIC GROWTH IN NIGERIA
ABSTRACT
The petroleum 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.
This study examines the impact of
oil industry on economic growth in Nigeria. Through the use of econometrics
analysis. The study covered a period of 36 years (1970 – 2005) and data for
variable were collected from secondary source.
The structural equation aimed at
capturing the influences of government revenue from oil, exchange and inflation
rate. Crude oil export and non oil exports, or GDP and capital formation were
estimated by method of OLS estimation techniques. Each model contained five
exogenous variable and one endogenous variables respectively. The result obtain
showed that government revenue from oil, exchange rate crude oil export non –
oil export and inflation had strong impacts on the Gross Domestic Product and capital
formation of the country. The implication of this is that the country’s
economic life is dependent on these variables. The study concluded by
recommending the expansion of refinery capacity diversification of the economy
and her export structure among other.
TABLE OF CONTENT
Title
Page
Abstracts
CHAPTER ONE
INTRODUCTION
1.1
Introduction/Background
of the study
1.2
Statement
of the Problem
1.3
Objectives
of the
study
1.4
Hypothesis
of the
study
1.5
Significance
of study
1.6
Scope of
the
study
1.7
Limitation
of the
study
CHAPTER TWO
LITERATURE REVIEW
2.1
Review of
Relevant Literature
2.2
Background
of the
study
2.2.1
History
of Nigeria economy
2.2.2
History
of crude oil in
Nigeria
2.2.3
Development
of oil/petroleum sector in Nigeria
2.3
The
performance of the oil sector in Nigeria
2.4
The
importance of oil to Nigeria
2.5
The
petroleum sector and the Nigerian economy
2.5.1
Employment
Opportunities
2.5.2
Contribution
to Gross Domestic Product
2.5.3
Contribution
to Gross Government Revenue
2.5.4
Contribution
to Gross Foreign Exchange
Reserves
2.5.5
Contribution
to Foreign Exchange Reserves
2.5.6
Contribution
of Crude oil export to Nigeria’s export earnings
2.5.7
Contribution
to production export, import and Domestic Consumption
2.6
Contribution
to Energy Supply
2.7
Challenges
in the oil sector
2.8
Prospects
of the oil industry
CHAPTER THREE
THEORETICAL FRAMEWORK AND
METHODOLOGY
3.1
Theoretical
Framework
3.2
Model
Specification
3.3
Methodology
3.4
Presentation
of Data
CHAPTER FOUR
EMPIRICAL ANALYSIS
4.1
Presentation
of ordinary least square regression results for model
1
4.2
Introduction
of
Results
4.3
Presentation
of Result of Model Two
4.4
Interpretation
of the Results
4.4.1
Test of
Hypothesis
4.4.2
Model
I
4.4.3Model
II
4.4.4CHAPTER
FIVE
5.1
Summary
of Findings
5.2
Implication
of
Findings
5.3
Recommendation
5.4
Conclusion
Reference
Bibliography
Appendix
LIST OF TABLE AND CONTENT
Table
3.1 Table of Variables
Estimated
4.1
Ordinary Least Square Estimation (Model 1)
4.1
Plot of actual and fitted value of GDP (OLS) Model 1
4.2
Cochrane – Orcutt Method AR(4) Model 1
4.3
plot of actual and fitted value of GDP (Cochrance Model 1)
Table 4.3 Ordinary
Least Square Estimation Model II
Graph 4.3 Plot of Actual
and Fitted Value of CAPF Model II
Table 4.4 Cochrance –
Orcutt Method AR(4) Model II
Table 4.4 Plot of
actual and fitted value of CAPE (Cochrance Medol II)
CHAPTER ONE
INTRODUCTION
1.1
INTRODUCTION/BACKGROUND
OF THE STUDY
Nigeria is the largest country in
Africa located between 30 and 140 east longitude and 40
and 140 North latitude, it has an area of 923,79 square Kilometers
with a population estimated at 140 million people in 2005, the country doubles
as Africa’s most populous country. Nigeria also trebles as the largest produces
of crude oil and natural gas in Africa, Nigeria is the 10th largest
oil producer in the world the 3rd largest in Africa and most
prolific oil producers in sub-Saharan Africa from a small beginning of an
output of about 5000 barrels per day in 1958, production level reached about
2.055 million b/d in 1973 and rose to a high level of 2.3million b/d in 1979.
thus steadily from 1960 petroleum sector began to exert its overriding height
to the extent that by the mid 1970 it had incontrovertibly anchored itself as
the most readily available resource for prosecuting programme directed at achieving
rapid growth and development of the Nigeria economy (Aminu 1997). The Nigeria
economy has undergone numerous phases in the premise of diagnoses, it is said
that the country, is a memo economy. In spite of structural changes over the
years the economy has been relying of a single sector for her foreign exchange.
Prior to independence in 1960
agricultural sector dominated the provision of food income and labour force of
the Nigeria’s populace, agricultural accounted for the nation growth rate of 5%
per annum across the 1950, and 1960s. In 1960, agriculture sector contributed
triple what the petroleum sector contributed to the country’s GDP foreign
exchange earning; the National income investment etc. oil is a major source of
energy in Nigeria and the world in general. Oil being the mainstay of the
Nigeria economy plays a vital role in shaping the economic and political
destiny of the country (Gbadebo Odolarui 2005). In 1970, the petroleum sector
took over as the bedrock of the Nation, although it entered the export list
since 1958. Petroleum asserted it importance in 1970 after the Nigeria civil
war (1967-1970), when it accounted for 70% and 80% of export and export
earnings respectively since then Nigeria economy has solely dependent on the
petroleum sector as the major sector of government revenue and foreign exchange
(Ojamerage and Oyaide 1987).
The nature of the economy was
described by the erstohile petroleum resources minister Alhaji Riwance Lukman
“As an oil related economy with a weak and neglected agricultural sector and a
manufacturing capacity dependent on imported raw materials”. Nigeria depends on
crude oil and when there is any slight fluctuation in the world oil market the
economy is thrown into commotion why, is this so? For the past three decades
crude oil has been a major source of revenue, energy and foreign exchange for
the Nigerian economy, Against this background, this paper work reviews the
early attempts of exploring oil, its importance, its role as it affect various
segment of the economy example government revenue foreign exchange etc).
Secondly we will analyze some of the problems of the petroleum sector,
the role of NNPC and OPEC as well as the prospects of the industry in Nigeria.
Thirdly, build and specify models to this effect, present and analyze date,
concluding this work by providing recommendation based on our findings
1.2 STATEMENT OF THE PROBLEM
1
The communities within which the oil well are exploited. Some of these
communities still suffer environment degradation which leads to deprivation of
means of livelihood and other economic and social factor. According to (Amnesty
International 2006) 70% of the six million people in the Niger Delta live below
$1 U.S dollars per day. There is large scale corruption among the elected
leaders especially governors and these leader help to sponsor the militants
groups kidnapping innocent people and sabotaging efforts by the federal
government for any infrastructural development
2
There has been large proceeds obtained from the domestic sales and export of
petroleum product, its effect on the growth of the Nigeria economy as regard
returns and productivity in still questionable, hence, the need to evaluate the
relative impact of crude oil on the economy.
3
One recurring problem is that for a long time all the four refineries which are
in Port-Harcourt, Warri and Kaduna operate far below their installed capacities
to the extent that the country spent substantial foreign exchange to import
fuel for domestic consumption (Orubu 1999)
4
The gas sub sector of the petroleum industry is also an important supplier of
energy although. Until recent times significant attention has not been paid to
gas. Utilization to the extent that the largest proportion of it is flared away
and the flaring of gas has serious environmental hazard (Nwosu, 1998, Ogbuigwe
1998).
1.3 OBJECTIVE OF THIS STUDY
The purpose of this study is to examine critically
the extent to which crude oil export affect the Nigerian economy growth. The
objective are as follows:
(i)
To assess
the impact of petroleum sector/petroleum exports on Nigerian economic growth by
looking at the various key macro-economic valuable such as
(a)
Gross
Domestic Product (GDP)
(b)
Balance
of payment
(c)
Government
Revenue
(d)
Foreign
exchange earning etc from crude oil
(ii)
To
evaluate and empirically test for GDP as a determinant which will capture the
effect of inflation, exchange rate, value of non-oil export and government
revenue fro petroleum export
(iii)
To make
appropriate policy recommendation
1.4 HYPOTHESIS OF THE STUDY
With respect to the analyses so
far, the hypotheses propound are as follows.
Hypothesis propound are as follows
1
H0: There is no significant relationship between GDP and government
revenue from oil in Nigeria
H1: There is significant
relationship between GDP and government revenue from oil in Nigeria
2
H0: The value of non-crude oil export is not significant determinant
of GDP in Nigeria
H1: The value of
Non-Crude oil export in a significant determinant of GDP in Nigeria
3
H0: Exchange rate in Nigeria does not impact positively on GDP
H1: Exchange rate in Nigeria impact positively on GDP
4 H0:
Inflation is not negatively related to GDP
H1: Inflation is negatively related to GDP
5
H0: There is positive significant relationship between oil export
and capital formation.
H1: There is positive
significant relationship between oil export and capital formation.
1.5
SIGNFICANCE
OF THE STUDY
The significance of this entire research, is to
determine the overall impact/effect of the petroleum sector to the growth and
development of the Nigeria economy. Given the fact that the oil sector is very
crucial sector in the Nigeria economy, there is the direct need for an
appropriate and desirable production and export policy for the sector in
Nigeria, though crude oil has contributed largely to the economy, the revenue
has not be properly used. Considency the fact that there are other sectors in
the economy the excess revenue made from the oil sector can be invested in them
to diversify and also increase the total GDP of the economy.
The greatest benefit which
Nigeria has enjoyed from the petroleum sector has been made possible through
the various mechanisms of control and regulation which the Federal Government
evolved over the years, with aspect to the activities of the key operator in
the sector, including revenues generated from its exportation, or the economy
using some selected macro-economic indicator with Nigeria beings case study.
1.6 SCOPE OF THE STUDY.
The research covers a period of
thirty-five year (1970-2005) the choice of the period is based on the rational
that though exportation of crude oil first started in 1958 it because the major
exportation of the Nation; resources in 1970 still date. The researcher in
quite aware of the fact that a country’s growth rate is measured by its GDP
hence we intend to consider only G.D.P as the determinant in Nigeria to alloy
complication that may arise. Finally, this research is confined in testing the
impact of exchange rate, inflation rate, value of non-oil exports and
government revenue from crude oil export on GDP in Nigeria over the period
under this study.
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