Volume 10, Number 1
Oil Revenue Fluctuations and Government Spending in Nigeria
Authors
Bawa John Dauda and Pam Malcolm Alexander, Bingham University, Nigeria
Abstract
This study uses the Autoregressive Distributed Lag (ARDL) model to investigate the connection between oil revenue and government expenditure in Nigeria from 1981 to 2022. The ARDL bounds testing approach was used to investigate both short-run fluctuations and long-run equilibrium relationships among variables. The empirical findings confirm a significant long-run relationship, where oil revenue serves as a major driver of government expenditure. In the short run, oil-related revenue has a positive and immediate effect on government spending; still, the magnitude of influence declines over time. Controlled for GDP, it also has a positive long-term impact on fiscal outlay, though its short-run impacts are irregular. An ECM shows that the rate of return to the long-run equilibrium is very swift, as manifested by an error correction term that has statistical significance. Diagnostic tests confirm the model's reliability by showing that the results satisfy the requirements of serial correlation, heteroscedasticity, and stability. These results provide strong evidence of the urgency to reduce Nigeria's dependency on oil revenues by diversifying its fiscal base, alongside the need for countercyclical fiscal policy to enhance economic stability. The research brings critical perspectives to policymakers to manage the inherent fluctuations within oil markets and to foster sustainable fiscal policies in economies reliant on natural resources.
Keywords
Oil Revenue, Government Expenditure, Fiscal Policy, Economic Growth.