Assessment of the Relationship Between Oil Revenue and Non-Oil GDP Growth in Nigeria

Nigeria's over-reliance on oil revenue creates economic volatility and limits the development of its non-oil productive sectors, and analysing the relationship between oil revenue and non-oil GDP growth provides evidence for economic diversification policy. This study assessed the relationship between oil revenue and non-oil sector GDP growth in Nigeria using annual data from 1990 to 2022 from the CBN Statistical Bulletin. Vector Autoregression (VAR) analysis and Granger causality tests were applied. Descriptive trend analysis supplemented the econometric estimation. Results showed that oil revenue constituted an average of 68 percent of total federal government revenue over the study period. Variance decomposition from the VAR model showed that oil revenue shocks explained 42 percent of the variation in non-oil GDP after 10 periods. Granger causality tests confirmed bidirectional causality between oil revenue and non-oil GDP in the short run. Period-specific analysis revealed that the relationship was strongest during oil boom years and weakest during price crashes. The Dutch Disease hypothesis received partial empirical support, with manufacturing share of GDP declining during oil revenue peaks. The study concludes that Nigeria's non-oil economy is significantly constrained by oil revenue volatility. Recommendations include ring-fencing non-oil sector development funds, completing the Petroleum Industry Act implementation, and investing oil windfall revenue in infrastructure to stimulate non-oil productive capacity.

Keywords: oil revenue, non-oil GDP, economic diversification, VAR model, Dutch disease