An Examination of External Shocks and Government Revenue in Nigeria

Abstract

This paper investigates the empirical relationship between external shocks and government revenue in Nigeria using cointegration approach and error correction mechanism (ECM). The result of the study confirms a long run relationship between government revenue and the explanatory variables (oil revenue, government expenditure, tax revenue, terms of trade shock and exchange rate). The significance of external shocks and its negative sign shows that external shocks exert substantial pressure and uncertainty on government revenue in Nigeria. The coefficient of oil revenue and its significance also is an indication that oil revenue remains the main determinant of government revenue in Nigeria. Based on these findings, the study recommended among others things that government should intensify committed efforts to diversify its source of revenue.

Keywords: External Shock, Government Revenue, Exchange rate and Diversification.