EFFECT OF OIL AND AGRICULTURE ON ECONOMIC GROWTH IN NIGERIA

International Journal of Development and Economic Sustainability

(IJDES)

Moses C. Ekperiware and Michael O. Olomu

Mosekperi2002@yahoo.com

NATIONAL CENTRE FOR TECHNOLOGY MANAGEMENT (NACETEM), OAU, ILE-

IFE, OSUN STATE, NIGERIA

ABSTRACT

The Nigerian oil and agricultural sectors are two crucial

sectors as regards the history of economic development in

Nigeria. The agricultural sector was the highest contributor of

income and still the highest employer of labour but since the

late 1960s, the oil sector overtook the agricultural sector been

the federal government main source of revenue and foreign

earnings. Since these variables are key determinants of economic

progress in the history of Nigeria, this study attempt to examine

the interaction and feedback mechanism among these sectors with

economic output in Nigeria from 1981 to 2012 using vector auto

regression (VAR) methodology.

1

The results showed that all the three variables are

positively correlated and the unit root test shows that the

variables are stationary at levels. Output was more decomposed

into agriculture sector (AGRICP) than oil revenue (OILRP) both in

the short run and long run while AGRICP was more decomposed to

output in the short run, but OILRP in the long run. OILRP on the

other hand was more decomposed to output followed by AGRICP in

both short and long run but with a larger standard error.

Response of output to innovation on oil revenue was only

additive in the shortest while and negatively affected output

before positively trickled down in the long run. Gains from oil

sector are not properly used but short lived and the gains from

the oil sector have reduced the motivation of regions and indeed

Nigerians to maximise her resources endowed other than oil.

Output response to AGRICP innovation exhibits positive shock and

shows tendency of positively contributing to output both in the

short run and long run and any effort put into investing more in

the agricultural sector even from gains from the oil sector would

lead to sustainable development of the economy.

Innovation to OILRP showed a positive shock to AGRICP which

means that oil revenues can be a veritable source of fund to

boost agricultural development in the country where majority of

2

the Nigerian population is employed. There is a positive feedback

from the AGRICP on the oil sector, which means a developing

agricultural sector does not exclude development of the oil

sector. Innovation to output has positive shock on oil revenue.

This means that increased output can attract foreign investors in

the economy.

Conclusively, the three economic variables are vital economic

mix for economic development in Nigeria and government should do

more in place of policy and planning to optimise the gains for

economic progress.

Keywords: Oil, agriculture, output, Nigeria, economic

development

1. Introduction

To most developing economies of the world, agriculture is a key

potential for economic growth and development. Nigeria’s economy

can be described as a rapidly growing economy with an average

growth rate of 7% in the last decade (World Bank 2013). Nigeria

has been blessed with both agricultural and oil endowment.

Agriculture has been Nigerian major economic activity before the

emergence of crude oil in the late 1960s. But since then, the

3

country has relied more on oil for revenue and development than

agriculture as the oil sector still welcome most expatriates to

do major activities in the oil sector in the country. If the

nation relies on a product, majority of her labour should be

leading in working and contributing to their economic growth

compared to what is obtainable in the Nigerian case let alone the

nation exporting crude and importing the refined product for

consumption at an exorbitant price compared to what is been

exported. Still the people employed and infrastructure and system

in place to process these crude products had it been done in

Nigeria would have significantly contribute in developing the

nation.

The nation budget is usually been earmark based on crude oil

price while the agricultural sector is not much on the scene but

which actually contributes to development in the country.

Ekperiware (2011) opined that the oil sector has not been

contributing much compared to the real sector as far as the

Nigerian case is concern so a further empiric on the impact of

oil revenue the government makes out of the oil sector and the

percentage contribution of the agricultural sector to development

in the country is germane.

Here the definition of agriculture is germane, agriculture

is the growing of crops and rearing of animals as wells as4

raising fishes for human use. This sounds like basic need of man.

Food security is as important as human existence. The cumulative

agricultural activities in the country can be said as basic and a

vital component of the real sector of the economy. It is obvious

that the Nigerian economy is not planned with this all important

sector besides the huge natural endowment in the agricultural

sector, rather the economy is planned based on expectations from

the oil market (Ogbonna and Appah, 2012).

Also, if the agricultural sector is left at the mercy of the

oil sector which its major stakeholders and players are just a

handful of Nigerian and which its economic activities takes place

outside the shores of the country with most of its active workers

not citizens of the country, as an economist, it’s hard to

convince even non economist how such sector is expected to drive

development. So one can easily see my hesitations about the oil

sector and economic development in the country.

However, the revenue stream the oil sector brings to the

Nigeria economy is commendable, contributing the highest revenue

to the economy and the major foreign earner etc. but as the

engine of economic survival is not in the fabric of the real

economy raises doubts if the oil sector can drive the structural,

political, social, infrastructural priorities of the economy

5

compared to if agriculture is the main stay of the economy and

labour, infrastructures and the entire system works to sustain

the economy.

Foreign workers come work earn wages and go back in the top

oil jobs, the nation exports crude which go into other economies

and processed by companies which employ labour, must have built

infrastructure, service, pay tax etc. and export such product at

selling price for Nigeria to use. As far as the oil sector is

concern, Nigeria is mostly a consumer economy from the chain of

event of the system.

Hence this study wants to investigate how much the oil

sector, as promising as it seems and the agricultural sector are

contributing to Nigerian development of Nigeria.

Chiefly, this study would look at the trend of agriculture

and oil sectors’ indices in the country, and comparatively

examine the impact of both sectors to economic development in the

country

2. LITERATURE REVIEW

6

This review would take two forms; theoretical and empirical on

government revenue from oil and contributions of agriculture

sector on development in Nigeria.

2.1 Theoretical Review

2.1.1 Oil Revenue

Dominant theories have suggested that there is a significant

relationship between economic growth vis-à-vis oil revenue income

and agriculture but international evidences also suggested that

resource-rich nations are characterized by slow or stagnating

growth, de-industrialization, low savings, deteriorating capital

accumulation and stagnating or declining productivity (Budina and

Van Wijnbergen, 2008).

National Planning Commission (2011) revealed from their

survey that the Nigeria’s primary activity constitutes

agriculture, mining and quarrying which accounts for more than

65% of real gross outputs and about 80% of foreign exchange

revenues in 2011 and within the non-oil sector, manufacturing,

building and construction account for 4.14% of foreign exchange

and government revenue during this period.

Oil as a natural resource in Nigeria was discovered in 1956

and its exportation began proper in 1958 and since the oil boom

7

era in the early 1970s, it seems to have become the leading

factor for economic growth and development in Nigeria’s economy.

Notably, Nigeria is Africa’s highest oil exporter and the world’s

tenth highest oil producer and Nigeria’s economy is structurally

dependent on oil and gas which constitutes about 96% of total

exports, 80% of government revenues and around 40% of GDP (CBN,

2011). In addition, Libya and Nigeria are the two countries with

huge reserves in Africa accounting for almost 65% of total oil

reserve from Africa.

Previous studies have shown that revenue generated from oil

has played a principal role and contributes to economic

development in Nigeria (Azaiki and Shagari, 2007). Statistically,

the total oil revenue generated between 2000 and 2009 into the

Federation Account totalled to N34.2 trillion while non-oil

revenue was N7.3 trillion which amounted to 82.36% and 17.64%

respectively (CBN, 2009). During this period, the mean value of

oil revenue stood at N3.42 trillion compared to non-oil revenue

which was N732.2 billion (CBN, 2009).

According to Yakub (2008), revenue from a nation’s natural

resources (e.g. petroleum) has a positive influence on economic

growth and development. This was demonstrated as Nigeria’s oil

revenue accounted for a larger share of the total revenue which

rose from 77.5% in 1975 to 88.6% in 2011 (Nwosa and Ogunlowore,8

2013). This was further evident as Nigeria generated an extra

$390 billion in oil-related fiscal revenue between 1971 and 2005

using 1970 as a benchmark and oil accounted for about 90% of the

total exports and approximately four-fifths of total government

revenues (Budina and Van Wijnbergen, 2008).

Ogbonna and Appah (2012) also carried out an empirical

investigation on the effects of petroleum income on the Nigerian

economy for the period 2000 to 2009 where they discovered that

oil revenue has a positive and significant relationship with

Nigeria’s gross domestic product (GDP) and per capita income,

which is the revenue generated from exploration contributes to

the national growth.

Contrarily, Bawa and Mohammed (2007) asserted that “Nigeria

with all its oil wealth has performed poorly, with GDP, per

capita today not higher than at independence in 1960” where they

acknowledged poor performance of Nigeria’s economy but they

refused to provide any empirical evidence to support their

findings.

Baghebo and Atima (2013) examined the impact of petroleum on

economic growth in Nigeria for the period of 1980-2011. The

stationary status of the time series data was examined using

Augmented Dickey Fuller test. The real gross domestic product is9

the dependent variable while the independent variables are

foreign direct investment, oil revenue, corruption index,

external debt. The Johansen co-integration test was conducted to

ascertain the long run equilibrium condition of the variables in

the model. It was revealed that the oil revenue and corruption

index negatively impact the real GDP while other independent

variables have positive impacts on the growth of the economy.

They concluded that the resource curse theory is in operation in

Nigeria as revenue from oil goes into the hands of few

influential Nigerians in midst of plenty.

Nigeria’s heavy dependence on the oil sector coupled with

the uncertainty in the international oil market has brought mixed

economic performances and macroeconomic imbalances which

accumulated to weakening international oil price and a subsequent

revenue shortfall culminated in relatively low real GDP growth in

2002. This led to deterioration in the fiscal account and

pressure on external payments amounted to a debt crisis but the

upturn in the oil market in 2003 brought about the anticipated

upswing in real GDP growth, which rose to 5% (AfDB/OECD, 2004).

More importantly in the recent times, the Nigerian oil and

gas sub-sector has become inefficient in recent years due to the

absence of a coherent national energy policy, rendering it unable

10

to satisfy the growing demand for energy as government owned oil

refineries have failed to supply refined petroleum products.

The contributions of the oil industry to growth and

development of the Nigerian economy can be measured in terms of

the industry’s impacts on the macroeconomic variables. These

contributions can also be examined in terms of its share of

revenue generation and has immensely improved both the foreign

exchange reserves and government revenues (Onyemaechi, 2012). It

was furthered observed that the government share of crude oil

revenue coupled with various joint venture agreements with the

international oil producing companies is roughly 70% of revenues

accumulated from crude oil transactions. He also opined that the

oil industry can contribute significantly to growth and

development of the Nigerian economy through foreign direct

investment (FDI).

With more than 65% of Nigeria’s federal generated revenue

coming from oil in the last decade, Nigeria’s fiscal policy

remains heavily influenced by the oil industry and its volatile

movement and based on the IMF report in 2003 that starting from

1970, Nigeria’s revenue and expenditures followed a similar

pattern to oil prices. Revenue and expenditure also experienced

sharp increase during the periods of high oil prices such as

1979-82, 1991-92, 2000-02 and 2005-09 and more so, when oil11

prices subsided after the booms, Nigeria’s revenue declined as

well. On average, from 2003 to 2011, oil revenue accounted for

80% of all Federal-collected revenue annually.

Odularu (2007) asserted that oil and gas exports accounted

for more than 98% of export earnings and about 83% of federal

government revenue in Nigeria in the year 2002. More so in the

same year, Nigeria's per capita income had improved to about one-

quarter of its mid-1970s high and far below the level at

independence while the economy also continue to witness massive

growth of "informal sector" estimated by some to be as high as

75% of the total economy.

In the year 2000, rise in world’s oil prices resulted into

more improved government revenue of over $16 billion which nearly

equals the double amount realized in the year 1999. Nigeria has

the second largest oil reserves and the biggest oil exporter in

Africa with 2.5 million bpd as at year 2011 followed by Angola

exporting an estimated 1.84 million bpd in that year. More so,

Nigeria’s 37.2 billion barrels of oil reserves places it among

the top 10 countries in terms of reserves.

To Englama et al (2010), crude oil became major export

commodity in Nigeria in 1958 and its contribution to the federal

government revenue became pronounced which was 82.1% in 1970,

26.3% in 1974 and constituted 83% in the year 2008 largely due to12

upsurge in oil prices in the international market and this

gradually made Nigeria became dependent on crude oil as

productivity declined in other sectors. During the global

financial crisis in 2009, Nigeria economy was threatened with

unfavourable terms of trade which resulted into a drop in the oil

revenue and slow economic growth.

According to OPEC survey in 2010/2011, it was declared that

oil export revenue dropped from US$74,033 million in 2008 to

US$43,623 million in 2009 and the naira depreciated to N148.902

in 2009 from N118.546 in 2008 and the Nigeria’s total export

revenue in 2010 amounted to US$70,579 million and the revenue of

petroleum exports from the total export revenue was US$61,804

million which is 87.6% of total export revenue and this means

that Nigeria’s economy is vulnerable to the fluctuation of oil

prices at the international market.

Furthermore, recent evidences have shown that some of the

countries in Africa with the highest income inequality are oil

producing nations such as Nigeria, where 70% of the population

lives below the poverty line as many locals regard fuel subsidies

as the only benefit of living in an oil-rich nation. Fuel

subsidies as it is also come with it its own inadequacies and

losses to the economy. Several resurgent efforts aimed at

diversification of these economies have yielded mixed results –13

although the Nigeria is a bit encouraging as the non-oil sector

has been expanding at a much faster pace than the oil sector in

recent years.

Based on various empirical evidences from Nigeria, it is

crystal clear that oil discovery has had certain effects on the

Nigerian people and the economy both positively and negatively.

Considering the environment challenges faced by the various

communities within which the oil wells are exploited where they

suffer environmental degradation which results to deprivation of

means of livelihood and other socioeconomic factors could be

refer to as negative impacts. Though national financial records

have shown that large proceeds are obtained from the domestic

sales and export of petroleum products, its impact on the growth

of the Nigerian economy still raise some questions which this

study aimed to answer.

2.1.2 Agriculture Resources

Nigeria was a predominantly agrarian economy with agriculture

accounting for significant shares of the GDP and total exports,

as well as employing the bulk of the labour force. Since

inception and in the 1960’s, the Nigeria’s main domestic product

was agriculture which provided the country with employment and

14

foreign exchange earnings but the sector was just over taken by

the oil boom that began in the 1970’s and this hampered its

contribution to the Nigerian economy (National Bureau of

Statistics, 2012). Historically, from the moment the oil boom

began, there has been a steady decline in the market share of the

agricultural productivity in Nigeria and it has been largely

ignored in favour of the oil and gas industry.

Agriculture is the backbone of the rural economy such as

Nigeria which is characterized as an engine that contributes to

the growth of the economy but the sector is still identified with

low agricultural outputs despite the country’s fertile landmass

partly due to the over dependence of government on oil which

characterized Nigeria as a mono-cultural economy. Currently,

Nigeria has 75% of its land suitable for agriculture, but only

40% remained cultivated (Omorogiuwa et al, 2014). Agricultural

sector is an important stimulus market for industrial products –

both in terms of backward and forward linkages to industry.

A strong empirical correlation has been established between

Nigerian’s total GDP and the agriculture which suggests that the

prospects of the non-oil sub-sector and the overall economy are

closely tied to the performance of the agricultural sector. The

growth and development of the agricultural sector in any economy

is pertinent for national output growth through its influence15

from indigenous incomes, provision of resources for industrial

needs and foreign exchange earnings leading to transformation of

such an economy.

Several evidences have shown the importance of agriculture

to the national growth and development of Nigeria considering its

contributions to the GDP. Oji-Okoro (2011) examined the impact of

the agricultural sector on the Nigerian economy between the

periods of 1986-2007. The study employed a multiple linear

regression technique for analysis and the result indicated that

there is a positive relationship between GDP vis-à-vis domestic

saving, government expenditure on agriculture and foreign direct

investment. It was revealed in the study that 81% of the

variation in GDP could be explained by domestic savings,

government expenditure on agriculture and FDI.

Oji-Okoro argued further that with Nigeria’s rich endowment in

black oil and other mineral resources, the economic sustenance

still largely rest on the agricultural sector as it employs about

65% of the adult labour force. Majorly, the agro-industrial

enterprises depend on the sector for raw materials while 88% of

the non-oil exports earning come from the sector, so it remains

the leading employment sector of the vast majority of the

Nigerian population as it employs two-third of the labour force.

16

More importantly, the fact that agricultural sector

contributes up to 90% of non-oil foreign exchange earnings

position it at the heart of strategy for economic transformation

and diversification from oil revenue (Eboh, 2011). He pointed

that between the periods of 1983-2002, the adverse effects of the

oil sector volatility have been moderated by agricultural value

added in the country but since GDP per capita reached its minimal

in 1984, agricultural GDP per capita increased by over 30% to

2002. Appalling indicators have shown that agriculture sector

spending has been erratic as it contributes an annual average of

more than 32% of GDP from 2002-2007.

Tombofa (2004) affirmed that the active existence and

performance of agriculture is of great significance to the growth

and development process. He noted that the basis for the world’s

great civilization and the increase in productivity around the

world is agriculture which also sustained the first industrial

revolution. The agricultural sector is known to employ over 75%

of the labour force in developing countries and Nigeria is not an

exemption to this assertion.

Ukeji (2003) further acknowledged that in the 1960’s,

agriculture contributed up to 64% to the total GDP but

retrogressively decline in the 1970’s to 48% and falls to 20% in

17

1980 and 19% in 1985 as a result of oil discoveries in large

quantity coupled with economic mismanagement pronounced in these

periods. Similar research was also conducted by Olajide et al.

(2012) to measure the relationship between agricultural resource

and economic growth in Nigeria. The Ordinary Least Square

regression method was used for data analysis and the result

ascertained a positive cause and effect relationship between GDP

and agricultural outputs. Agricultural sector was estimated to

contribute more than 30% to the GDP between 1970 and 2010 which

implied that agricultural sector for the period of analysis has

significant influence on macroeconomic output level.

In fact, due to oil prices collapse and the financial crisis

in the 1980’s, it led to decreased government revenue which

affected the growth of the agricultural sector but Structural

Adjustment Policy (SAP) was implemented by the Nigerian

government chiefly aimed to stabilize the economy including the

agricultural sector did not prove successful (IFPRI 2010).

Although the agricultural policies established over the years by

the Nigerian government have not been successful but agriculture

sector continues to heavily influence GDP and economic growth. In

the recent time, agribusiness appears to be the new frontier to

18

improve economy as it has become the country’s new strategy

towards economic growth and development.

From the above, it is crystal clear that previous indigenous

studies have paid little or no attention to the relationship

between GDP vis-à-vis oil revenue and agriculture, thereby

providing further justification for this study.

3. Method

The methods used in this study are descriptive statistics and

econometric techniques. The descriptive technique presents trend

of oil, agriculture and GDP variables to illustrate their

movement over time in the Nigerian economy. For the econometric

technique, the vector auto regression (VAR) model will be used.

This would show feedback and shocks to innovations in oil,

agriculture and output through variance decomposition and impulse

response from Vector Auto-Regression (VAR) in the Nigerian

economy overtime.

3.1 Measurement of variable

Here, the description of the variables is done and their

characteristics are examined in a tabular form.

19

TABLE 1: MEASUREMENT OF VARIABLES

VARIABLE MEANING MEASUREMENT

RGDPR Growth Rate of output (OUTPUTt−OUTPUTt−1

OUTPUTt )X100OILRP Percentage revenue from oil

out of federal government

revenue

(OILREVENUEFGREVENUE )X100

AGRICP Percentage of agriculture

output contribution to

output

( AGRICOUTPUTECONOMICOUTPUT )X100

Source: Author (2014)

There seems to be no better index to measure the oil sector

than its revenue to the government and the contribution of the

agricultural sector than its contribution to the nation’s output.

From the table above, an increase of RGDPR means that present

economic output is better than past economic output, hence the

economy is growing and that sectorial outputs like the

agricultural, manufacturing and service etc. sectors in the

economic are improving. In the oil sector, its evidence from

Central Bank of Nigerian (CBN) database that the oil sector

provides the economy with the highest revenue (OILRP), we attempt

to examine how this revenue relates with the agricultural and

economic growth in Nigeria. 20

Concerning the agricultural sector, it has been the mainstay

of the economy before the exploration of oil in Nigerian and

remains one of the leading real sectors of the economy. If indeed

government is working (policies and implementations) both locally

and internationally, there should be a huge linkage between the

oil and the agricultural sector in impacting the economic growth

of Nigeria. So examining and getting feedback of how these

variables relate (shocks and innovations) in the Nigerian economy

would be a useful exercise.

3.2 Model Specification

This study is carried out using the vector auto regression

(VAR) model, for the purpose of analysing the effects and tracing

out innovation (shocks) on the choice variables in the Nigerian

economy (oil, agriculture and output). The VAR approach, made

popular by Sims (1980), has become an important tool in empirical

macroeconomics. In VAR model, a system of simultaneous equation

is represented in vector form like as in equation (1) below.

AYt=B(L)Yt−1+Cet ……………………………………………………………………. (1)

21

is a general representative vector of endogenous variables,

Yt−1 is a vector of their lagged values and et is a white noise

vector of the disturbance terms for each variable. This

disturbance term captures any exogenous factors in the model. The

square n x n matrix A, where n is the number of variables,

contains the parameters of the contemporaneous response of the

variables to the disturbances or innovations. B(L) is a pth

degree matrix polynomial in the lag operator L, where p is the

number of lagged periods used in the model. However, we transform

equation (1) into a reduced form model to derive the standard VAR

representation, as shown in equation (2) below, which facilitates

estimation of the model parameters.

Yt=D(L)Yt−1+et ……………………………………………………………………………….. (2)

The transformation of (1) into (2) implies that D(L)≡A−1Cet . The

error term ( et ) are linear combinations of the uncorrelated shocks

( et ) such that each individual error term is serially uncorrelated

with zero mean and a constant variance.

The matrix is the variance /covariance of the estimated

residuals et , of the standard VAR. The 2 are the variance and ij

are the covariance terms where each ij = (1/T)∑T=1

Te¿ejt and

22

=[ σ12 σ12 σ13

σ21 σ22 σ23

σ31 σ32 σ32 ]………………………………………………………………………(3)

The matrix is symmetric, since 12 = 21, and so it contains only

(n2 + n)/2 distinct estimated parameters to use in recovering the

parameters in (1).

The VAR model involves applying the long-run restrictions

which tend to be more consistent with many economic theories. One

of the advantages of this approach is that the restrictions are

only applied to the long-run parameter, while the short-run

dynamics are allowed to be determined freely.

The research study considers a vector of three variables:

∆Xt,=[∆agricpt,∆gdprt,∆oilrpt ]

(5)

where Xt is a 3×1 vector of variables, where rgdpt denotes the GDP

growth rate; agricpt represents percentage contribution of

agriculture sector to economic output and oilrpt stands for

percentage contribution of oil sector to government revenue.

4. PRESENTATION AND ANALYSIS OF RESULTS

The study’s estimates are presented below for analysis

TABLE 2: UNIT ROOT TEST

23

S/N I(0) I(0)t I(I)

RGDPR -8.136809

OILRP -3.552645

AGRICP -1.942465 -2.852931

Source: computed using eview 7.0 and arranged by author

The unit root test shows that all the variables are

stationary at levels. However, agriculture was found to be

stationary at levels with trend. This shows that the agricultural

sector has been trending overtime hence its autoregressive may be

useful in determining agricultural development.

TABLE 3: CORRELATION TEST

RGDPR OILRP AGRICP

RGDPR 1.0000

OILRP 0.3720 1.0000

AGRICP 0.5598 0.3679 1.0000

Source: computed using eview 7.0 and arranged by author

Table 3 presents the correlation matrix for the variables in

the model. A possible incidence of strong correlation among the

independent variables may violate the working assumptions of our

24

estimation technique and hereby produce unrealistic results.

Here, we test for the likely occurrence of multi-collinearity

among the independent variables using the pairwise correlation

matrix. The table indicates a positive weak multi-collinearity

among the independent variables. The correlation test showed that

all the three variables are positively correlated. The highest

correlation is between the agricultural sector and the output,

followed by oil and output before agriculture and oil.

FIGURE 1: PERCENTAGE GROWTH TREND OF VARABLES

-40

-20

0

20

40

60

80

100

85 90 95 00 05 10

RGDPR OILRP AGRICP

Source: computed using eview 7.0 and arranged by author

Trend analysis is made to find out what direction a variable

is going, at what rate and how rapid. Where comparisons were to

be made among sectors percentage would have to be applied to all

of the data. The percentage rate of contribution of the oil25

sector to government revenue is greater than the contribution of

the agricultural sector contribution to economic output in

Nigeria. The economic output has been progressive since after the

Structural Adjustment Program (SAP) saga but its rate is lower

than that of oil sector and the agricultural sector. The economic

variables consistently indicate progressive and positive trend

which shows that the economy is improving.

TABLE 4: PRESENTATION OF VAR ESTIMATES

Date: 09/04/14 Time: 17:45 Sample(adjusted): 1983 2012 Included observations: 30 after adjusting endpoints t-statistics in parentheses

RGDPR OILRP AGRICPRGDPR(-1) 0.109827

(0.56674)-0.043429(-0.12153)

0.008807(0.07192)

RGDPR(-2) 0.139763(1.29200)

0.284689(1.42719)

-0.094980(-1.38945)

OILRP(-1) 0.018116(0.16086)

0.359112(1.72921)

-0.028595(-0.40180)

OILRP(-2) -0.094162 (-0.89486)

-0.079520(-0.40982)

0.123182(1.85254)

AGRICP(-1) 0.124208(0.40455)

0.474458(0.83803)

0.625387(3.22339)

AGRICP(-2) 0.258951(0.81055)

-0.272630(-0.46278)

0.241897(1.19821)

C -4.437939(-0.46122)

47.05813(2.65217)

-1.670062(-0.27466)

R-squared 0.410719 0.311297 0.801322 Adj. R-squared 0.256994 0.131636 0.749493 Sum sq. resids 234.7035 798.0686 93.72165 S.E. equation 3.194448 5.890555 2.018627 F-statistic 2.671771 1.732689 15.46086 Log likelihood -73.42504 -91.78311 -59.65513 Akaike AIC 5.361669 6.585541 4.443676 Schwarz SC 5.688615 6.912487 4.770622 Mean dependent 4.520000 76.59383 36.61259 S.D. dependent 3.705950 6.321284 4.033165 Determinant Residual Covariance 601.7669 Log Likelihood -223.7025 Akaike Information Criteria 16.31350

26

Schwarz Criteria 17.29434 Source: computed using eview 7.0 and arranged by author

Though the estimates or coefficients of VAR are not too

relevant compared to their impulse and variance decomposition

results but they show the individual relation of the endogenous

and exogenous variable. The VAR estimates showed that passed

values of output and agriculture positively relates to economic

growth and agricp but oilrp second lag negatively affects output

and agricp. This means that gains from the oil sector are not put

in futuristic projects that promote output through the real

sector.

FIGURE 2: GRAPH OF IMPULSE RESPONSE OF VARIABLES

27

-2

0

2

4

6

1 2 3 4 5 6 7 8 9 10

Response of RG DPR to RG DPR

-2

0

2

4

6

1 2 3 4 5 6 7 8 9 10

R esponse of R G DPR to O ILR P

-2

0

2

4

6

1 2 3 4 5 6 7 8 9 10

Response of RGD PR to AGR ICP

-4

-2

0

2

4

6

8

1 2 3 4 5 6 7 8 9 10

Response of OILR P to R G D PR

-4

-2

0

2

4

6

8

1 2 3 4 5 6 7 8 9 10

R esponse of O ILR P to O ILR P

-4

-2

0

2

4

6

8

1 2 3 4 5 6 7 8 9 10

R esponse of O ILR P to AG R IC P

-2

-1

0

1

2

3

1 2 3 4 5 6 7 8 9 10

Response of AGR IC P to RG D PR

-2

-1

0

1

2

3

1 2 3 4 5 6 7 8 9 10

Response of AG R IC P to O ILR P

-2

-1

0

1

2

3

1 2 3 4 5 6 7 8 9 10

R esponse of AG R ICP to AG RIC P

Response to Cholesky O ne S.D. Innovations ± 2 S.E.

Source: computed using eview 7.0

Response of output to innovation on oil revenue was only

additive in the shortest while and negatively affected output

before trickle down in the long run. This could mean that the

gains from oil are not properly used or invested in productive

investments that would increase output immediately. The short run

28

negative shock on output may also be as a result that oil revenue

has reduced the motivation of regions and indeed Nigerians to

work hard and maximise her resources endowed other than oil. But

the response of output to AGRICP innovation exhibits positive

shock.

Besides what Ajayi (2009) said about agriculture employing

70 per cent of Nigerian population and generates 88 per cent of

nonoil earning, from the impulse response AGRICP has the tendency

of positively contributing to output both in the short run and

long run and any effort put into investing more in the

agricultural sector even from gains from the oil sector would

lead to sustainable development of the economy. Analysis of shock

to AGRICP as a result of innovation to OILRP showed a positive

shock which means that oil revenues can be a veritable source of

fund to boost agricultural development in the country where

majority of the population is employed. Also, it was interesting

to note that feedback of from the AGRICP positively impact on the

oil sector, which means a developing agricultural sector does not

exclude development of the oil sector. Further analysis from

figure 2 and table 5 showed that innovation to output has

positive shock on oil revenue. This may be as a result of how

29

increased output may attract foreign investors and assure their

investments.

TABLE 5: TABLE OF IMPULSE RESPONSE OF VARIABLES

IMPULSE RESPONSE OF RGDP

Period RGDPR OILRP AGRICP1 2.797043 (0.36110) 0.000000 (0.00000) 0.000000 (0.00000)2 0.330951 (0.47881) 0.066040 (0.49320) 0.214345 (0.46474)3 0.618672 (0.32904) -0.528630

(0.46348)0.619292 (0.27956)

4 0.203804 (0.28186) -0.236439(0.32088)

0.439261 (0.26176)

5 -0.006747(0.21029)

0.025993 (0.24783) 0.511929 (0.24213)

6 -0.026640(0.16740)

0.087566 (0.21324) 0.465452 (0.23558)

7 -0.042837(0.15031)

0.153399 (0.18160) 0.409451 (0.21543)

8 -0.037492(0.13764)

0.163508 (0.16893) 0.367599 (0.20730)

9 -0.022625(0.12517)

0.148710 (0.15186) 0.324995 (0.19811)

10 -0.014638(0.11260)

0.132250 (0.13722) 0.288255 (0.19083)

Response of OILRP:Period RGDPR OILRP AGRICP

1 -0.879493(0.93480)

5.082202 (0.65611) 0.000000 (0.00000)

2 -0.285684(0.94373)

1.725650 (0.94533) 0.818768 (0.86197)

3 0.780578 (0.61626) 0.138697 (0.87687) 0.326292 (0.52603)4 0.240884 (0.39418) 0.197525 (0.65112) 0.300037 (0.45264)

5 0.177627 (0.26854) -0.009734(0.33063)

0.425042 (0.37175)

6 0.100902 (0.19151) -0.010304(0.25550)

0.367695 (0.35856)

7 0.010311 (0.13732) 0.072313 (0.20496) 0.354355 (0.31575)8 -0.009647

(0.12030)0.094439 (0.18156) 0.329439 (0.28801)

30

9 -0.015782(0.10507)

0.108769 (0.15400) 0.293447 (0.27181)

10 -0.016466(0.09478)

0.110650 (0.13638) 0.262996 (0.25707)

Response of AGRICP:Period RGDPR OILRP AGRICP

1 0.319575 (0.32005) -0.209563(0.31623)

1.725691 (0.22279)

2 0.249641 (0.36409) -0.276385(0.36958)

1.079224 (0.32458)

3 -0.129491(0.33303)

0.353731 (0.39517) 1.070847 (0.25713)

4 -0.104092(0.34034)

0.352037 (0.38872) 1.007377 (0.29356)

5 -0.064123(0.32095)

0.365290 (0.34915) 0.865697 (0.30877)

6 -0.060105(0.29447)

0.360900 (0.32826) 0.772670 (0.32656)

7 -0.033699(0.26724)

0.311462 (0.29421) 0.689946 (0.33862)

8 -0.021326(0.23865)

0.271782 (0.26505) 0.612947 (0.34667)

9 -0.016204(0.21111)

0.238388 (0.23885) 0.548803 (0.34996)

10 -0.012668(0.18730)

0.209131 (0.21627) 0.491621 (0.34926)

Ordering: RGDPR OILRP AGRICPSource: Generated from eview 7.o

From the variance decomposition result in table 6 showed

that output is more decomposed into AGRICP than OILRP both in the

short run and long run while AGRICP was more decomposed to output

in the short run, but OILRP in the long run. However, OILRP was

more decomposed to output followed by AGRICP in both short and

long run, only with a larger standard error. AGRICP was found to

be more decomposed to output in the short run but OILRP in the

31

long run. In summary, from figure 1 and 3 it showed that after

the Structural Adjustment Period (SAP), the Nigerian economy has

been on a positive trend

TABLE 6: TABLE OF VARIANCE DECOMPOSITION OF VARIABLES

 Variance Decomposition of RGDPR:

 Period S.E. RGDPR OILRP AGRICP 1  3.194448  100.0000  0.000000  0.000000 2  3.226915  99.36987  0.054631  0.575500 3  3.431759  92.10016  3.143327  4.756510 4  3.486508  89.67605  3.645243  6.678712 5  3.535323  87.21714  3.552323  9.230534

 Variance Decomposition of OILRP: Period S.E. RGDPR OILRP AGRICP

 1  5.890555  2.907674  97.09233  0.000000 2  6.289966  2.819198  94.97067  2.210134 3  6.365719  4.713743  92.78571  2.500543 4  6.384855  4.871186  92.35521  2.773608 5  6.406504  4.938589  91.73238  3.329032

 Variance Decomposition of AGRICP: Period S.E. RGDPR OILRP AGRICP

 1  2.018627  3.269094  1.405759  95.32515 2  2.403120  3.714270  2.717236  93.56849 3  2.730527  3.170292  4.293684  92.53602 4  2.992528  2.797280  5.379822  91.82290 5  3.179961  2.530281  6.485489  90.98423

 Cholesky Ordering: RGDPR OILRP AGRICP

FIGURE 3: TREND OF NIGERIAN ECONOMIC GROWTH

1971197319751977197919811983198519871989199119931995199719992001200320052007200920112013

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0Growth Rate RGDP

32

Source: CBN Statistical Bulletin Various Issued

5. CONCLUSIONS AND RECOMMENDATIONS

The correlation test showed that all the three variables are

positively correlated and the unit root test shows that all the

variables are stationary at levels. However, agriculture was

found to be stationary at levels with trend.

Output is more decomposed into AGRICP than OILRP both in the

short run and long run while AGRICP was more decomposed to output

in the short run, but OILRP in the long run. OILRP on the other

hand was more decomposed to output followed by AGRICP in both

short and long run, only with a larger standard error.

Response of output to innovation on oil revenue was only

additive in the shortest while and negatively affected output

before trickled down in the long run. Gains from oil sector are

not properly used are short lived. Concentration on the illusive

gain from the oil sector has reduced the motivation of regions

and indeed Nigerians to work hard and maximise her resources

endowed other than oil.

Output response to AGRICP innovation exhibits positive shock

and shows tendency of positively contributing to output both in

the short run and long run and any effort put into investing more

33

in the agricultural sector even from gains from the oil sector

would lead to sustainable development of the economy.

Innovation to OILRP showed a positive shock to AGRICP which

means that oil revenues can be a veritable source of fund to

boost agricultural development in the country where majority of

the population is employed.

There is a positive feedback from the AGRICP on the oil sector,

which means a developing agricultural sector does not exclude

development of the oil sector.

Innovation to output has positive shock on oil revenue. This

means that increased output can attract foreign investors in the

economy.

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