Oil Windfall Revenues, Expenditure Management, and Dutch Disease Effects in Nigeria

This study analyses the macroeconomic channels through which oil windfall revenues, including petroleum tax receipts and royalties, transmit into the Nigerian economy, with a focus on testing for Dutch Disease effects. The Dutch Disease hypothesis posits that resource revenue booms appreciate the real exchange rate and crowd out the non-oil tradeable sector, constraining diversification and long-run productivity. Nigeria's experience across multiple oil boom cycles provides rich data for testing these dynamics. Using a time-series and structural vector autoregression approach, the study models the impulse responses of the real exchange rate, non-oil export volumes, manufacturing output, and domestic inflation to identified petroleum revenue shocks over a 30-year period. Oil price is used as an instrumental variable for petroleum tax revenue. The study also incorporates an expenditure composition analysis examining whether oil windfalls are channelled toward productivity-enhancing capital expenditure or consumed in recurrent spending, which may amplify Dutch Disease effects. The study expects to find robust evidence of real exchange rate appreciation and non-oil export crowding out following oil revenue spikes, and that the severity of Dutch Disease symptoms is significantly lower in periods when the Excess Crude Account absorbs a higher proportion of windfall receipts. Contributions include a refined SVAR model incorporating the stabilisation fund transmission channel. Keywords: oil windfall, Dutch Disease, petroleum taxation, exchange rate, economic diversification.