Revisiting the Nexus between Oil Rents and Financial Development in Nigeria: The Threshold Regression Approach

Journal of Research in National Development (JORIND), 2019

12 Pages Posted: 8 Mar 2020

See all articles by Abubakar Bagudo

Abubakar Bagudo

Division of General Studies, Kebbi State University of Science and Technology

Wasiu Adekunle

The Nigerian Economic Summit Group (NESG); Centre for Econometric and Allied Research (CEAR); The Nigerian Economic Summit Group (NESG)

Date Written: December 30, 2019

Abstract

The study challenged the findings of Beck (2011) that resource-rich countries and oil-exporting developing countries are characterized by lower levels of financial development, and like past studies, utilized the two-stage least squares to estimate the linear impact of oil rents on financial development in Nigeria over the period 1981 to 2017. Results showed that oil rents exert negative influence on financial development in Africa’s largest oil exporting country. Also re-examined was the nexus between oil rents and financial development by accounting for nonlinearities using the threshold regression approach developed by Hansen (1999). Results revealed that the impact of oil rents on financial development is an increasing function of the level of oil rents. 14% was defined as the minimum threshold of oil rents that could help enhance financial development, thereby suggesting that the oil rents-financial development relation in Nigeria is U-shaped. One important policy implication of findings is that resource-rich countries, Nigeria inclusive, could deepen their financial sectors by properly channeling windfalls from resource rents towards the development of other sectors so as to strengthen the resilience of their economies in events of shocks to the booming resource sector.

Keywords: Oil rents, financial, development, threshold regression

JEL Classification: AE, FG

Suggested Citation

Bagudo, Abubakar and Adekunle, Wasiu, Revisiting the Nexus between Oil Rents and Financial Development in Nigeria: The Threshold Regression Approach (December 30, 2019). Journal of Research in National Development (JORIND), 2019, Available at SSRN: https://ssrn.com/abstract=3534094

Abubakar Bagudo

Division of General Studies, Kebbi State University of Science and Technology ( email )

Aliero, Nigeria
Kebbi, Nigeria

Wasiu Adekunle (Contact Author)

The Nigerian Economic Summit Group (NESG) ( email )

Ikoyi, Lagos, Nigeria
Nigeria

Centre for Econometric and Allied Research (CEAR) ( email )

Ibadan
Nigeria

The Nigerian Economic Summit Group (NESG) ( email )

The Summit House,
6, Oba Elegunshi Street
Ikoyi, Lagos
Nigeria

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