The Restructuring of the Nigerian Economy and the Nigerian Oil Sector Earnings Nexus

26 Pages Posted: 29 Nov 2014 Last revised: 2 Dec 2014

See all articles by Chris Ehinomen

Chris Ehinomen

Federal University Oye-Ekiti

Babatunde Afolabi

Afe Babalola University, Department of Economics

Samuel Ogundare

Redeemer's University

Date Written: November 29, 2014

Abstract

Nigeria is endowed with abundant natural resources of which petroleum resources play a dominant role in the economy. These resources can be effectively harnessed and managed for the benefit of all Nigerians. Petroleum Profit Tax is a major source of revenue for the Federal Government of Nigeria to meet its statutory obligations of ensuring the economic development of Nigeria. In order to make the business environment conducive for new investments, the government began to invest the new found oil wealth in socio-economic infrastructure in the urban areas. The relative attractiveness of the urban areas made many able-bodied Nigerians to migrate from the hinterland, abandoning their farmlands for the cities and hoping to partake in the growing and prosperous (oil-driven) urban economy. This created social problems of congestion, pollution, unemployment and crimes.

In the light of this study, the objective is to assess the impact of crude oil earnings and its significance in shifting the structure of the Nigerian economy. The scope of the study is limited to only the oil sector and its significance in the shifting of Nigerian economy using the 1994 to 2012 data set. The OLS (Ordinary Least Square) multiple regression analysis was used with the aid of E-Views to examine the relationship between petroleum profit tax and Nigerian economic growth from 1994 to 2012,using the gross domestic product (GDP), Petroleum Profit Tax (PPT), Inflation (INF) and Exchange rate (EXCH) as variables. Unit root tests were carried out to evaluate the time series properties of these variables and Co-integration test was carried out to check for the existence of a long-run relationship between the variables. Empirical results obtained showed that there is positive impact on GDP by petroleum profit tax. However, the impact on GDP is low (about 14%) relative to other productive sectors such as Agriculture. Unit root test results reveal the presence of stationarity among the variables at 5% and the co-integration test shows the existence of a long-run relationship. It is recommended that Government should transparently and judiciously account for the revenue it generates through PPT by investing in other productive sectors such as the industrial and agricultural sectors as well as in the provision of infrastructural facilities. The government should also attend to the issues of tax avoidance and evasion by exploration and production companies, and should begin to provide high quality public goods to boost the morale of tax payers.

Keywords: Petroleum profit tax, Re-structuring of the Nigerian Economy, and economic growth.

Suggested Citation

Ehinomen, Chris and Afolabi, Babatunde and Ogundare, Samuel, The Restructuring of the Nigerian Economy and the Nigerian Oil Sector Earnings Nexus (November 29, 2014). Available at SSRN: https://ssrn.com/abstract=2532032 or http://dx.doi.org/10.2139/ssrn.2532032

Chris Ehinomen

Federal University Oye-Ekiti ( email )

Oye-Afao Road
Oye Ekiti
Nigeria

Babatunde Afolabi (Contact Author)

Afe Babalola University, Department of Economics ( email )

Ado Ekiti
Nigeria
+234 8035 029 400 (Phone)

Samuel Ogundare

Redeemer's University ( email )

Km 46, Lagos - Ibadan Expressway
Ogun State
Redemption City, Ogun State 23401
Nigeria

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