Oil Resource Earnings and the Nigerian Economy: Does Financial Development Matter?

Raymond Osi Alenoghena, Joseph Ifeanyi Nwajei, Shola Festus Ogbedebi


The study investigates the role of the financial sector in the mobilization of oil resources for the development of the Nigerian economy. While the period covers between 1981 and 2019, the research utilizes the principal component analysis (PCA) approach to construct a composite proxy for financial development from five variable indicators. Also, the study deploys the fully modified ordinary least squares (FMOLS) to estimate the impact of oil revenue and financial development on Nigeria’s economic growth.  The study found that oil revenue has a positive and significant effect on economic growth. In addition, the impact of financial development on economic growth is negative and significant. But, the interacted effect of oil revenue and financial development is positive and significant. Hence, the study concludes that, while the resource curse theory does not apply to Nigeria during the period, the part of oil proceeds that is channeled to financial development positively impacts the economy. Thus, the study recommends more robust development-related measures to improve financial development in the country and an improved articulation approach for the investment of the earnings from the Nigerian oil sector.

JEL Classification: G20 O16 O43 Q32

Keywords: Oil revenue, Financial Development, Economic Growth, Principal Component Analysis (PCA), Fully Modified Ordinary Least Squares (FMOL)

DOI: 10.7176/DCS/12-4-03

Publication date: April 30th 2022


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ISSN (Paper)2224-607X ISSN (Online)2225-0565

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