See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/282322787

Effects of Oil and Agriculture on Economic Growth in Nigeria

Article · May 2015

CITATIONS READS
0 14,877

2 authors:

Moses Ekperiware Michael O. Olomu

National Centre for Technology Management National Centre for Technology Management
13 PUBLICATIONS 113 CITATIONS 28 PUBLICATIONS 114 CITATIONS

SEE PROFILE SEE PROFILE

All content following this page was uploaded by Michael O. Olomu on 16 November 2019.

The user has requested enhancement of the downloaded file.

 Journal of Global Economics, Management and
Business Research
3(2): 75-86, 2015
International Knowledge Press
www.ikpress.org

EFFECT OF OIL AND AGRICULTURE ON ECONOMIC

GROWTH IN NIGERIA

MOSES C. EKPERIWARE1* AND MICHAEL O. OLOMU1

1
Department of Science, Policy Research and Innovation Studies (SPIS), National Centre for Technology
Management (NACETEM), Oau, Ile-Ife, Osun State, Nigeria.

AUTHORS’ CONTRIBUTIONS
This work was carried out in collaboration between authors MCE and MOO. Author MCE designed the study,
wrote the introduction, methodology, sourced for secondary data, analysis econometric results and summary of
the study while author MOO wrote the literature review. Both authors read and approved the final manuscript.

Received: 19th February 2015

Accepted: 18th March 2015
Published: 14th May 2015 Original Research Article
__________________________________________________________________________________

ABSTRACT

The study examines the interaction and feedback mechanism between agricultural and oil sectors with output in
Nigeria from 1981 to 2012, using vector auto regression (VAR) methodology. Output response to OIL revenue
innovation was only additive in the shortest. Output response to agriculture output exhibited positive effect of
economic development through investing in the agricultural sector even from the gains from the oil sector in as
oil shock showed positive response in the agricultural sector in Nigeria. Conclusively, the three economic
variables are vital economic mix for economic development in Nigeria and policies and planning be optimised
for economic progress.

Keywords: Nigeria economy; agricultural sector; oil sector; government revenue; economic development.

1. INTRODUCTION
To most developing economies of the world,
agriculture is a key potential for economic growth and
development. Nigeria’s economy can be described as
a rapidly growing economy with an average growth
rate of 7% in the last decade [1]. Nigeria has been
blessed with both agricultural and oil endowment.
Agriculture has been Nigerian major economic
activity before the emergence of crude oil in the late
1960s. But since then, the country has relied more on
oil for revenue and development than agriculture as
the oil sector still welcome most expatriates to do
major activities in the oil sector in the country. If the
nation relies on a product, majority of her labour
should be leading in working and contributing to their
economic growth compared to what is obtainable in
_____________________________________________________________________________________________________
the Nigerian case let alone the nation exporting crude
and importing the refined product for consumption at
an exorbitant price compared to what is been
exported. Still the people employed and infrastructure
and system in place to process these crude products
had it been done in Nigeria would have significantly
contribute in developing the nation.
The nation budget is usually been earmark based on
crude oil price while the agricultural sector is not
much on the scene but which actually contributes to
development in the country. Ekperiware [2] opined
that the oil sector has not been contributing much
compared to the real sector as far as the Nigerian case
is concern so a further empiric on the impact of oil
revenue the government makes out of the oil sector
and the percentage contribution of the agricultural
sector to development in the country is germane.

*Corresponding author: Email: mosekperi2002@yahoo.com;


Here the definition of agriculture is germane,
agriculture is the growing of crops and rearing of
animals as wells as raising fishes for human use. This
sounds like basic need of man. Food security is as
important as human existence. The cumulative
agricultural activities in the country can be said as
basic and a vital component of the real sector of the
economy. It is obvious that the Nigerian economy is
not planned with this all important sector besides the
huge natural endowment in the agricultural sector,
rather the economy is planned based on expectations
from the oil market [3].
Also, if the agricultural sector is left at the mercy of
the oil sector which its major stakeholders and players
are just a handful of Nigerian and which its economic
activities takes place outside the shores of the country
with most of its active workers not citizens of the
country, as an economist, it’s hard to convince even
non economist how such sector is expected to drive
development. So, one can easily see the curiosity here
about the oil sector and economic development in the
country.
However, the revenue stream the oil sector brings to
the Nigeria economy is commendable, contributing
the highest revenue to the economy and the major
foreign earner etc. but as the engine of economic
survival is not in the fabric of the real economy raises
doubts if the oil sector can drive the structural,
political, social, infrastructural priorities of the
economy compared to if agriculture is the main stay
of the economy and labour, infrastructures and the
entire system works to sustain the economy.
Foreign workers come work earn wages and go back
in the top oil jobs, the nation exports crude which go
into other economies and processed by companies
which employ labour, must have built infrastructure,
service, pay tax etc. and export such product at selling
price for Nigeria to use. As far as the oil sector is
concern, Nigeria is mostly a consumer economy from
the chain of event of the system.
Hence this study wants to investigate how much the
oil sector, as promising as it seems and the
agricultural sector are contributing to Nigerian
development of Nigeria.
Chiefly, this study would look at the trend of
agriculture and oil sectors’ indices in the country, and
comparatively examine the impact of both sectors to
economic development in the Nigeria
2. LITERATURE REVIEW
This review would take two forms; theoretical and
empirical on government revenue from oil and
76
Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015
contributions of agriculture sector on development in
Nigeria.
2.1 Theoretical Review
2.1.1 Oil Revenue
Dominant theories have suggested that there is a
significant relationship between economic growth vis-
à-vis oil revenue income and agriculture but
international evidences also suggested that resource-
rich nations are characterized by slow or stagnating
growth, de-industrialization, low savings,
deteriorating capital accumulation and stagnating or
declining productivity [4].
National Planning Commission [5] revealed from
their survey that the Nigeria’s primary activity
constitutes agriculture, mining and quarrying which
accounts for more than 65% of real gross outputs and
about 80% of foreign exchange revenues in 2011 and
within the non-oil sector, manufacturing, building and
construction account for 4.14% of foreign exchange
and government revenue during this period.
Oil as a natural resource in Nigeria was discovered in
1956 and its exportation began proper in 1958 and
since the oil boom era in the early 1970s, it seems to
have become the leading factor for economic growth
and development in Nigeria’s economy. Notably,
Nigeria is Africa’s highest oil exporter and the
world’s tenth highest oil producer and Nigeria’s
economy is structurally dependent on oil and gas
which constitutes about 96% of total exports, 80% of
government revenues and around 40% of GDP [6]. In
addition, Libya and Nigeria are the two countries with
huge reserves in Africa accounting for almost 65% of
total oil reserve from Africa.
Previous studies have shown that revenue generated
from oil has played a principal role and contributes to
economic development in Nigeria [7]. Statistically,
the total oil revenue generated between 2000 and
2009 into the Federation Account totalled to N34.2
trillion while non-oil revenue was N7.3 trillion which
amounted to 82.36% and 17.64% respectively [8].
During this period, the mean value of oil revenue
stood at N3.42 trillion compared to non-oil revenue
which was N732.2 billion [8].
According to Yakub [9], revenue from a nation’s
natural resources (e.g. petroleum) has a positive
influence on economic growth and development. This
was demonstrated as Nigeria’s oil revenue accounted
for a larger share of the total revenue which rose from
77.5% in 1975 to 88.6% in 2011[10]. This was further
evident as Nigeria generated an extra $390 billion in

oil-related fiscal revenue between 1971 and 2005
using 1970 as a benchmark and oil accounted for
about 90% of the total exports and approximately
four-fifths of total government revenues [11].
Ogbonna and Appah [12] also carried out an empirical
investigation on the effects of petroleum income on
the Nigerian economy for the period 2000 to 2009
where they discovered that oil revenue has a positive
and significant relationship with Nigeria’s gross
domestic product (GDP) and per capita income, which
is the revenue generated from exploration contributes
to the national growth.
Contrarily, Bawa and Mohammed [4] asserted that
“Nigeria with all its oil wealth has performed poorly,
with GDP, per capita today not higher than at
independence in 1960” where they acknowledged
poor performance of Nigeria’s economy but they
refused to provide any empirical evidence to support
their findings.
Baghebo and Atima [13] examined the impact of
petroleum on economic growth in Nigeria for the
period of 1980-2011. The stationary status of the time
series data was examined using Augmented Dickey
Fuller test. The real gross domestic product is the
dependent variable while the independent variables
are foreign direct investment, oil revenue, corruption
index, external debt. The Johansen co-integration test
was conducted to ascertain the long run equilibrium
condition of the variables in the model. It was
revealed that the oil revenue and corruption index
negatively impact the real GDP while other
independent variables have positive impacts on the
growth of the economy. They concluded that the
resource curse theory is in operation in Nigeria as
revenue from oil goes into the hands of few influential
Nigerians in midst of plenty.
Nigeria’s heavy dependence on the oil sector coupled
with the uncertainty in the international oil market has
brought mixed economic performances and
macroeconomic imbalances which accumulated to
weakening international oil price and a subsequent
revenue shortfall culminated in relatively low real
GDP growth in 2002. This led to deterioration in the
fiscal account and pressure on external payments
amounted to a debt crisis but the upturn in the oil
market in 2003 brought about the anticipated upswing
in real GDP growth, which rose to 5% [14].
More importantly in the recent times, the Nigerian oil
and gas sub-sector has become inefficient in recent
years due to the absence of a coherent national energy
policy, rendering it unable to satisfy the growing
demand for energy as government owned oil
77
Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015
refineries have failed to supply refined petroleum
products.
The contributions of the oil industry to growth and
development of the Nigerian economy can be
measured in terms of the industry’s impacts on the
macroeconomic variables. These contributions can
also be examined in terms of its share of revenue
generation and has immensely improved both the
foreign exchange reserves and government revenues
[15]. It was furthered observed that the government
share of crude oil revenue coupled with various joint
venture agreements with the international oil
producing companies is roughly 70% of revenues
accumulated from crude oil transactions. He also
opined that the oil industry can contribute
significantly to growth and development of the
Nigerian economy through foreign direct investment
(FDI).
With more than 65% of Nigeria’s federal generated
revenue coming from oil in the last decade, Nigeria’s
fiscal policy remains heavily influenced by the oil
industry and its volatile movement and based on the
IMF report in 2003 that starting from 1970, Nigeria’s
revenue and expenditures followed a similar pattern to
oil prices. Revenue and expenditure also experienced
sharp increase during the periods of high oil prices
such as 1979-82, 1991-92, 2000-02 and 2005-09 and
more so, when oil prices subsided after the booms,
Nigeria’s revenue declined as well. On average, from
2003 to 2011, oil revenue accounted for 80% of all
Federal-collected revenue annually.
Odularu [16] asserted that oil and gas exports
accounted for more than 98% of export earnings and
about 83% of federal government revenue in Nigeria
in the year 2002. More so in the same year, Nigeria's
per capita income had improved to about one-quarter
of its mid-1970s high and far below the level at
independence while the economy also continue to
witness massive growth of "informal sector"
estimated by some to be as high as 75% of the total
economy.
In the year 2000, rise in world’s oil prices resulted
into more improved government revenue of over $16
billion which nearly equals the double amount
realized in the year 1999. Nigeria has the second
largest oil reserves and the biggest oil exporter in
Africa with 2.5 million bpd as at year 2011 followed
by Angola exporting an estimated 1.84 million bpd in
that year. More so, Nigeria’s 37.2 billion barrels of oil
reserves places it among the top 10 countries in terms
of reserves.

To Englama et al. [17], crude oil became major export
commodity in Nigeria in 1958 and its contribution to
the federal government revenue became pronounced
which was 82.1% in 1970, 26.3% in 1974 and
constituted 83% in the year 2008 largely due to
upsurge in oil prices in the international market and
this gradually made Nigeria became dependent on
crude oil as productivity declined in other sectors.
During the global financial crisis in 2009, Nigeria
economy was threatened with unfavourable terms of
trade which resulted into a drop in the oil revenue and
slow economic growth.
According to OPEC survey in 2010/2011, it was
declared that oil export revenue dropped from
US$74,033 million in 2008 to US$43,623 million in
2009 and the naira depreciated to N148.902 in 2009
from N118.546 in 2008 and the Nigeria’s total export
revenue in 2010 amounted to US$70, 579 million and
the revenue of petroleum exports from the total export
revenue was US$61,804 million which is 87.6% of
total export revenue and this means that Nigeria’s
economy is vulnerable to the fluctuation of oil prices
at the international market.
Furthermore, recent evidences have shown that some
of the countries in Africa with the highest income
inequality are oil producing nations such as Nigeria,
where 70% of the population lives below the poverty
line as many locals regard fuel subsidies as the only
benefit of living in an oil-rich nation. Fuel subsidies
as it is also come with it its own inadequacies and
losses to the economy. Several resurgent efforts aimed
at diversification of these economies have yielded
mixed results – although the Nigeria is a bit
encouraging as the non-oil sector has been expanding
at a much faster pace than the oil sector in recent
years.
Based on various empirical evidences from Nigeria, it
is crystal clear that oil discovery has had certain
effects on the Nigerian people and the economy both
positively and negatively. Considering the
environment challenges faced by the various
communities within which the oil wells are exploited
where they suffer environmental degradation which
results to deprivation of means of livelihood and other
socioeconomic factors could be refer to as negative
impacts. Though national financial records have
shown that large proceeds are obtained from the
domestic sales and export of petroleum products, its
impact on the growth of the Nigerian economy still
raise some questions which this study aimed to
answer.
78
Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015
2.1.2 Agriculture resources
Nigeria was a predominantly agrarian economy with
agriculture accounting for significant shares of the
GDP and total exports, as well as employing the bulk
of the labour force. Since inception and in the 1960’s,
the Nigeria’s main domestic product was agriculture
which provided the country with employment and
foreign exchange earnings but the sector was just over
taken by the oil boom that began in the 1970’s and
this hampered its contribution to the Nigerian
economy [18]. Historically, from the moment the oil
boom began, there has been a steady decline in the
market share of the agricultural productivity in
Nigeria and it has been largely ignored in favour of
the oil and gas industry.
Agriculture is the backbone of the rural economy
such as Nigeria which is characterized as an engine
that contributes to the growth of the economy but the
sector is still identified with low agricultural outputs
despite the country’s fertile landmass partly due to the
over dependence of government on oil which
characterized Nigeria as a mono-cultural economy.
Currently, Nigeria has 75% of its land suitable for
agriculture, but only 40% remained cultivated [19].
Agricultural sector is an important stimulus market
for industrial products – both in terms of backward
and forward linkages to industry.
A strong empirical correlation has been established
between Nigerian’s total GDP and the agriculture
which suggests that the prospects of the non-oil sub-
sector and the overall economy are closely tied to the
performance of the agricultural sector. The growth
and development of the agricultural sector in any
economy is pertinent for national output growth
through its influence from indigenous incomes,
provision of resources for industrial needs and foreign
exchange earnings leading to transformation of such
an economy.
Several evidences have shown the importance of
agriculture to the national growth and development of
Nigeria considering its contributions to the GDP. Oji-
Okoro [20] examined the impact of the agricultural
sector on the Nigerian economy between the periods
of 1986-2007. The study employed a multiple linear
regression technique for analysis and the result
indicated that there is a positive relationship between
GDP vis-à-vis domestic saving, government
expenditure on agriculture and foreign direct
investment. It was revealed in the study that 81% of
the variation in GDP could be explained by domestic
savings, government expenditure on agriculture and
FDI.

Oji-Okoro [20] argued further that with Nigeria’s rich
endowment in black oil and other mineral resources,
the economic sustenance still largely rest on the
agricultural sector as it employs about 65% of the
adult labour force. Majorly, the agro-industrial
enterprises depend on the sector for raw materials
while 88% of the non-oil exports earning come from
the sector, so it remains the leading employment
sector of the vast majority of the Nigerian population
as it employs two-third of the labour force.
More importantly, the fact that agricultural sector
contributes up to 90% of non-oil foreign exchange
earnings position it at the heart of strategy for
economic transformation and diversification from oil
revenue [21]. He pointed that between the periods of
1983-2002, the adverse effects of the oil sector
volatility have been moderated by agricultural value
added in the country but since GDP per capita reached
its minimal in 1984, agricultural GDP per capita
increased by over 30% to 2002. Appalling indicators
have shown that agriculture sector spending has been
erratic as it contributes an annual average of more
than 32% of GDP from 2002-2007.
Tombofa [22] affirmed that the active existence and
performance of agriculture is of great significance to
the growth and development process. He noted that
the basis for the world’s great civilization and the
increase in productivity around the world is
agriculture which also sustained the first industrial
revolution. The agricultural sector is known to employ
over 75% of the labour force in developing countries
and Nigeria is not an exemption to this assertion.
Ukeji [23] further acknowledged that in the 1960’s,
agriculture contributed up to 64% to the total GDP but
retrogressively decline in the 1970’s to 48% and falls
to 20% in 1980 and 19% in 1985 as a result of oil
discoveries in large quantity coupled with economic
mismanagement pronounced in these periods. Similar
research was also conducted by Olajide et al. [24] to
measure the relationship between agricultural
resource and economic growth in Nigeria. The
Ordinary Least Square (OLS) regression method was
used for data analysis and the result showed a positive
cause and effect relationship between GDP and
agricultural outputs. Agricultural sector was estimated
to contribute more than 30% to the GDP between
1970 and 2010 which implied that agricultural sector
for the period of analysis has significant influence on
macroeconomic output level.
In fact, due to oil prices collapse and the financial
crisis in the 1980’s, it led to decreased government
revenue which affected the growth of the agricultural
sector but Structural Adjustment Policy (SAP) was
79
Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015
implemented by the Nigerian government chiefly
aimed to stabilize the economy including the
agricultural sector did not prove successful [25].
Although the agricultural policies established over the
years by the Nigerian government have not been
successful but agriculture sector continues to heavily
influence GDP and economic growth. In the recent
time, agribusiness appears to be the new frontier to
improve economy as it has become the country’s new
strategy towards economic growth and development.
From the above, it is crystal clear that previous
indigenous studies have paid little or no attention to
the relationship between GDP vis-à-vis oil revenue
and agriculture, thereby providing further justification
for this study.
3. METHODS
The methods used in this study are descriptive
statistics and econometric techniques. The descriptive
technique presents trend of oil, agriculture and GDP
variables to illustrate their movement over time in the
Nigerian economy. For the econometric technique, the
vector auto regression (VAR) model will be used.
This would show feedback and shocks to innovations
in oil, agriculture and output through variance
decomposition and impulse response from Vector
Auto-Regression (VAR) in the Nigerian economy
overtime.
3.1 Measurement of Variable
Here, the description of the variables is done and their
characteristics are examined in a tabular form.
There seems to be no better index to measure the oil
sector than its revenue to the government and the
contribution of the agricultural sector than its
contribution to the nation’s output. From the table
above, an increase of RGDPR means that present
economic output is better than past economic output,
hence the economy is growing and that sectorial
outputs like the agricultural, manufacturing and
service etc. sectors in the economic are improving. In
the oil sector, its evidence from Central Bank of
Nigerian (CBN) database that the oil sector provides
the economy with the highest revenue (OILRP), we
attempt to examine how this revenue relates with the
agricultural and economic growth in Nigeria.
Concerning the agricultural sector, it has been the
mainstay of the Nigerian economy before the
exploration of oil and remains one of the leading real
sectors of the economy. If indeed government is
working (policies and implementations) both locally
and internationally, there should be a huge linkage

between the oil and the agricultural sector in
impacting the economic growth of Nigeria. So
examining and getting feedback of how these
variables relate (shocks and innovations) in the
Nigerian economy would be a useful exercise.
3.2 Model Specification
This study is carried out using the vector auto
regression (VAR) model, for the purpose of analysing
the effects and tracing out innovation (shocks) on the
choice variables in the Nigerian economy (oil,
agriculture and output). The VAR approach, made
popular by Sims [26], has become an important tool in
empirical macroeconomics. In VAR model, a system
of simultaneous equation is represented in vector form
like as in equation (1) below.
AYt  B( L)Yt 1  Cet (1)
Y t
is a general representative vector of endogenous
variables, Yt 1 is a vector of their lagged values and
et is a white noise vector of the disturbance terms for
each variable. This disturbance term captures any
exogenous factors in the model. The square n x n
matrix A, where n is the number of variables, contains
the parameters of the contemporaneous response of
the variables to the disturbances or innovations. B(L)
is a pth degree matrix polynomial in the lag operator
L, where p is the number of lagged periods used in the
model. However, we transform equation (1) into a
reduced form model to derive the standard VAR
representation, as shown in equation (2) below, which
facilitates estimation of the model parameters.
Yt  D( L)Yt 1  et (2)
The transformation of (1) into (2) implies that
D ( L )  A 1Ce t . The error term ( et ) are linear
combinations of the uncorrelated shocks ( et ) such
that each individual error term is serially uncorrelated
with zero mean and a constant variance.
The matrix  is the variance /covariance of the
estimated residuals et , of the standard VAR. The 2
are the variance and ij are the covariance terms
where each ij= (1/T)∑ and
80
Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015
= (3)
The matrix  is symmetric, since 12 = 21, and so it
contains only (n2 + n)/2 distinct estimated parameters
to use in recovering the parameters in (1).
The VAR model involves applying the long-run
restrictions which tend to be more consistent with
many economic theories. One of the advantages of
this approach is that the restrictions are only applied
to the long-run parameter, while the short-run
dynamics are allowed to be determined freely.
The research study considers a vector of three
variables:
∆ , = [∆ ,∆ ,∆ ] (5)
Where is a 3×1 vector of variables, where
denotes the GDP growth rate; represents
percentage contribution of agriculture sector to
economic output and oilrpt stands for percentage
contribution of oil sector to government revenue.
Descriptions of the critical variables used in the study
are presented below in Table 1.
4. PRESENTATION AND ANALYSIS OF
RESULTS
The study’s estimates are presented below for
analysis.
The unit root test in Table 2 shows that all the
variables are stationary at levels. However, agriculture
was found to be stationary at levels with trend. This
shows that the agricultural sector has been trending
overtime hence its autoregressive may be useful in
determining agricultural development.
Table 3 presents the correlation matrix for the
variables in the model. A possible incidence of strong
correlation among the independent variables may
violate the working assumptions of our estimation
technique and hereby produce unrealistic results.
Here, we test for the likely occurrence of multi-
collinearity among the independent variables using
the pairwise correlation matrix. The table indicates a
positive weak multi-collinearity among the
independent variables. The correlation test showed
that all the three variables are positively correlated.
The highest correlation is between the agricultural
sector and the output, followed by oil and output
before agriculture and oil.
 Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015

Table 1. Measurement of variables

Variable Meaning Measurement

RGDPR Growth Rate of output  OUTPUT t  OUTPUT t 1 
  X 100
 OUTPUT t 
OILRP Percentage revenue from oil out of federal  OILREVENUE 
government revenue   X 100
 FGREVENUE 
AGRICP Percentage of agriculture output contribution to  AGRICOUTPU T 
output   X 100
 ECONOMICOU TPUT 
Source: Author (2014)

Table 2. Unit root test Response of output to innovation on oil revenue was
only additive in the shortest while and negatively
S/N I(0) I(0)t I(I) affected output before trickle down in the long run.
RGDPR -8.136809 This could mean that the gains from oil are not
OILRP -3.552645 properly used or invested in productive investments
AGRICP -1.942465 -2.852931 that would increase output immediately. The short run
Source: computed using eview 7.0 and arranged by negative shock on output may also be as a result that
author (2015) oil revenue has reduced the motivation of regions and
indeed Nigerians to work hard and maximise her
Table 3. Correlation test resources endowed other than oil. But the response of
output to AGRICP innovation exhibits positive shock.
RGDPR OILRP AGRICP
RGDPR 1.0000 Besides what Ajayi [27] said about agriculture
OILRP 0.3720 1.0000 employing 70 per cent of Nigerian population and
AGRICP 0.5598 0.3679 1.0000 generates 88 per cent of nonoil earning, from the
Source: computed using eview 7.0 and arranged by impulse response AGRICP has the tendency of
author (2015) positively contributing to output both in the short run
and long run and any effort put into investing more in
Trend analysis is made to find out what direction a the agricultural sector even from gains from the oil
variable is going, at what rate and how rapid. Where sector would lead to sustainable development of the
comparisons were to be made among sectors economy. Analysis of shock to AGRICP as a result of
percentage would have to be applied to all of the data. innovation to OILRP showed a positive shock which
The percentage rate of contribution of the oil sector to means that oil revenues can be a veritable source of
government revenue is greater than the contribution of fund to boost agricultural development in the country
the agricultural sector contribution to economic output where majority of the population is employed. Also, it
in Nigeria. The economic output has been progressive was interesting to note that feedback of from the
since after the Structural Adjustment Program (SAP) AGRICP positively impact on the oil sector, which
saga but its rate is lower than that of oil sector and means a developing agricultural sector does not
the agricultural sector. The economic variables exclude development of the oil sector. Further
consistently indicate progressive and positive trend analysis from Fig. 2 and Table 5 showed that
which shows that the economy is improving. innovation to output has positive shock on oil
revenue. This may be as a result of how increased
Though the estimates or coefficients of VAR are not output may attract foreign investors and assure their
too relevant compared to their impulse and variance investments.
decomposition results but they show the individual
relation of the endogenous and exogenous variable. Though, the coefficient of VAR result from Table 4
The VAR estimates showed that passed values of were not much significant and is not of much concern
output and agriculture positively relates to economic as crucial attention is paid to impulse responses and
growth and agricp but oilrp second lag negatively error variance decomposition results presented in
affects output and agricp. This means that gains from Fig. 2 and Table 5 respectively below.
the oil sector are not put in futuristic projects that
promote output through the real sector.

81
 Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015

100

80

60

40

20

-20

-40
85 90 95 00 05 10

RGDPR OILRP AGRICP

Fig. 1. Percentage growth trend of variables

Source: computed using eview 7.0 (2015)

Table 4. Presentation of VAR estimates

Date: 09/04/14 Time: 17:45, Sample(adjusted): 1983 2012

Included observations: 30 after adjusting endpoints, t-statistics in parentheses
RGDPR OILRP AGRICP
RGDPR(-1) 0.109827 (0.56674) -0.043429(-0.12153) 0.008807 (0.07192)
RGDPR(-2) 0.139763 (1.29200) 0.284689 (1.42719) -0.094980(-1.38945)
OILRP(-1) 0.018116 (0.16086) 0.359112 (1.72921) -0.028595(-0.40180)
OILRP(-2) -0.094162 (-0.89486) -0.079520(-0.40982) 0.123182 (1.85254)
AGRICP(-1) 0.124208 (0.40455) 0.474458 (0.83803) 0.625387 (3.22339)
AGRICP(-2) 0.258951 (0.81055) -0.272630(-0.46278) 0.241897 (1.19821)
C -4.437939(-0.46122) 47.05813 (2.65217) -1.670062(-0.27466)
R-squared 0.410719 0.311297 0.801322
Adj. R-squared 0.256994 0.131636 0.749493
Sum sq. resids 234.7035 798.0686 93.72165
S.E. equation 3.194448 5.890555 2.018627
F-statistic 2.671771 1.732689 15.46086
Log likelihood -73.42504 -91.78311 -59.65513
Akaike AIC 5.361669 6.585541 4.443676
Schwarz SC 5.688615 6.912487 4.770622
Mean dependent 4.520000 76.59383 36.61259
S.D. dependent 3.705950 6.321284 4.033165
Determinant Residual Covariance 601.7669
Log Likelihood -223.7025
Akaike Information Criteria 16.31350
Schwarz Criteria 17.29434
Source: computed using eview 7.0 and arranged by author (2015)

82
 Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015

Response to Cholesky One S.D. Innovations ± 2 S.E.

Response of RGDPR to RGDPR Response of RGDPR to OILRP Response of RGDPR to AGRICP
6 6 6

4 4 4

2 2 2

0 0 0

-2 -2 -2
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of OILRP to RGDPR Response of OILRP to OILRP Response of OILRP to AGRICP

8 8 8

6 6 6

4 4 4

2 2 2

0 0 0

-2 -2 -2

-4 -4 -4
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of AGRICP to RGDPR Response of AGRICP to OILRP Response of AGRICP to AGRICP

3 3 3

2 2 2

1 1 1

0 0 0

-1 -1 -1

-2 -2 -2
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Fig. 2. Graph of impulse response of variables

Source: Computed using eview 7.0 (2015)

From the variance decomposition result in Table 6
showed that output is more decomposed into AGRICP
than OILRP both in the short run and long run while
AGRICP was more decomposed to output in the short
run, but OILRP in the long run. However, OILRP was
more decomposed to output followed by AGRICP in
both short and long run only with a larger standard
error. AGRICP was found to be more decomposed to
output in the short run but OILRP in the long run. In
summary, from Figs. 1 and 3 it showed that after the
Structural Adjustment Period (SAP), the Nigerian
economy has been on a positive trend

83
 Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015

Table 5. Table of impulse response of variables

Impulse response of RGDP

Period RGDPR OILRP AGRICP
1 2.797043 (0.36110) 0.000000 (0.00000) 0.000000 (0.00000)
2 0.330951 (0.47881) 0.066040 (0.49320) 0.214345 (0.46474)
3 0.618672 (0.32904) -0.528630 (0.46348) 0.619292 (0.27956)
4 0.203804 (0.28186) -0.236439 (0.32088) 0.439261 (0.26176)
5 -0.006747 (0.21029) 0.025993 (0.24783) 0.511929 (0.24213)
6 -0.026640 (0.16740) 0.087566 (0.21324) 0.465452 (0.23558)
7 -0.042837 (0.15031) 0.153399 (0.18160) 0.409451 (0.21543)
8 -0.037492 (0.13764) 0.163508 (0.16893) 0.367599 (0.20730)
9 -0.022625 (0.12517) 0.148710 (0.15186) 0.324995 (0.19811)
10 -0.014638 (0.11260) 0.132250 (0.13722) 0.288255 (0.19083)
Response of OILRP:
Period RGDPR OILRP AGRICP
1 -0.879493 (0.93480) 5.082202 (0.65611) 0.000000 (0.00000)
2 -0.285684 (0.94373) 1.725650 (0.94533) 0.818768 (0.86197)
3 0.780578 (0.61626) 0.138697 (0.87687) 0.326292 (0.52603)
4 0.240884 (0.39418) 0.197525 (0.65112) 0.300037 (0.45264)
5 0.177627 (0.26854) -0.009734 (0.33063) 0.425042 (0.37175)
6 0.100902 (0.19151) -0.010304 (0.25550) 0.367695 (0.35856)
7 0.010311 (0.13732) 0.072313 (0.20496) 0.354355 (0.31575)
8 -0.009647 (0.12030) 0.094439 (0.18156) 0.329439 (0.28801)
9 -0.015782 (0.10507) 0.108769 (0.15400) 0.293447 (0.27181)
10 -0.016466 (0.09478) 0.110650 (0.13638) 0.262996 (0.25707)
Response of AGRICP:
Period RGDPR OILRP AGRICP
1 0.319575 (0.32005) -0.209563 (0.31623) 1.725691 (0.22279)
2 0.249641 (0.36409) -0.276385 (0.36958) 1.079224 (0.32458)
3 -0.129491 (0.33303) 0.353731 (0.39517) 1.070847 (0.25713)
4 -0.104092 (0.34034) 0.352037 (0.38872) 1.007377 (0.29356)
5 -0.064123 (0.32095) 0.365290 (0.34915) 0.865697 (0.30877)
6 -0.060105 (0.29447) 0.360900 (0.32826) 0.772670 (0.32656)
7 -0.033699 (0.26724) 0.311462 (0.29421) 0.689946 (0.33862)
8 -0.021326 (0.23865) 0.271782 (0.26505) 0.612947 (0.34667)
9 -0.016204 (0.21111) 0.238388 (0.23885) 0.548803 (0.34996)
10 -0.012668 (0.18730) 0.209131 (0.21627) 0.491621 (0.34926)
Ordering: RGDPR OILRP AGRICP
Source: Generated from eview 7.o and arranged by author (2015)

30.0
Growth Rate RGDP
20.0

10.0

0.0

-10.0

-20.0

-30.0

Fig. 3. Trend of Nigerian economic growth

Source: CBN Statistical Bulletin Various Issued

84
 Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015

Table 6. Table of variance decomposition of variables

Variance Decomposition of RGDPR:

Period S.E. RGDPR OILRP AGRICP
1 3.194448 100.0000 0.000000 0.000000
2 3.226915 99.36987 0.054631 0.575500
3 3.431759 92.10016 3.143327 4.756510
4 3.486508 89.67605 3.645243 6.678712
5 3.535323 87.21714 3.552323 9.230534
Variance Decomposition of OILRP:
Period S.E. RGDPR OILRP AGRICP
1 5.890555 2.907674 97.09233 0.000000
2 6.289966 2.819198 94.97067 2.210134
3 6.365719 4.713743 92.78571 2.500543
4 6.384855 4.871186 92.35521 2.773608
5 6.406504 4.938589 91.73238 3.329032
Variance Decomposition of AGRICP:
Period S.E. RGDPR OILRP AGRICP
1 2.018627 3.269094 1.405759 95.32515
2 2.403120 3.714270 2.717236 93.56849
3 2.730527 3.170292 4.293684 92.53602
4 2.992528 2.797280 5.379822 91.82290
5 3.179961 2.530281 6.485489 90.98423
Cholesky Ordering: RGDPR OILRP AGRICP
Source: Generated from eview 7.O and arranged by author (2015)

5. CONCLUSIONS AND RECOMMENDA- Innovation to OILRP showed a positive shock to

TIONS
The correlation test showed that all the three variables
are positively correlated and the unit root test shows
that all the variables are stationary at levels. However,
agriculture was found to be stationary at levels with
trend.
Output is more decomposed into AGRICP than
OILRP both in the short run and long run while
AGRICP was more decomposed to output in the short
run, but OILRP in the long run. OILRP on the other
hand was more decomposed to output followed by
AGRICP in both short and long run, only with a
larger standard error.
Response of output to innovation on oil revenue was
only additive in the shortest while and negatively
affected output before trickled down in the long run.
Gains from oil sector are not properly used are short
lived. Concentration on the illusive gain from the oil
sector has reduced the motivation of regions and
indeed Nigerians to work hard and maximise her
resources endowed other than oil.
Output response to AGRICP innovation exhibits
positive shock and shows tendency of positively
contributing to output both in the short run and long
run and any effort put into investing more in the
agricultural sector even from gains from the oil sector
would lead to sustainable development of the
economy.
AGRICP which means that oil revenues can be a
veritable source of fund to boost agricultural
development in the country where majority of the
population is employed.
There is a positive feedback from the AGRICP on the
oil sector, which means a developing agricultural
sector does not exclude development of the oil sector.
Innovation to output has positive shock on oil
revenue. This means that increased output can attract
foreign investors in the economy.
COMPETING INTERESTS
Authors have declared that no competing interests
exist.
REFERENCES
1. World Bank. Nigeria Economic Report (No. 1):
Washington, DC, World Bank; 2013.
2. Ekperiware CM. Oil and nonoil FDI and
economic growth in Nigeria. Journal of
Emerging Trends in Economics and
Management Sciences (JETEMS) 2(4):333-343
(ISSN:2141-7024), Technology Innovation and
Enterprise Studies (TIES) Department,
National Centre for Technology Management
(NACETEM), Obafemi Awolowo University
(OAU), Nigeria; 2011.

85
 Ekperiware and Olomu; JGEMBR, 3(2): 75-86, 2015

3. Ogbonna GN, Appah E. Petroleum income and 16. Odularu GO. Crude oil and the Nigerian
Nigerian economy: Empirical Evidence. Economic Performance. Oil and Gas Business;
Arabian Journal of Business and Management 2007. Available:http://www.ogbus.ru/eng/
Review (OMAN Chapter). 2012;1(9). 17. Englama A, Duke OO, Ogunleye S, Isma FU.
4. Bawa S, Mohammed JA. Natural resource Oil Price and Exchange rate Volatility in
abundance and economic growth in Nigeria. Nigeria: An Empirical Observation; 2010.
Central Bank of Nigeria Economic Review. 18. National Bureau of Statistics; 2012.
Nigeria. 2007;45(3). CBN ISSN1957-2968. Available:http://www.nigerianstat.gov.ng/secto
5. National Planning Commission. Annual rstat/sectors/Agriculture
Performance of the Nigerian Economy 2010. (Retrieved July 1, 2014)
Abuja: National Planning Commission; 2011. 19. Omorogiuwa O, Zivkovi J, Ademoh F. The
6. Central Bank of Nigeria, Annual Report and role of agriculture in the economic
Statement of Accounts: GDP at current basic development of Nigeria. European Scientific
prices; 2011. Journal February 2014 edition. ISSN: 1857 –
7. Azaiki, Shagari. Oil, Gas and Life in Nigeria, 7881 (Print) e - ISSN 1857- 7431. 2014;10(4).
Ibadan, Y – Books, a Division of Associated 20. Oji-Okoro I. Analysis of the contribution of
Book–Makers Nigeria Limited; 2007. agricultural sector on the Nigerian economic
8. Central Bank of Nigeria. Economic Report for development. World Review of Business
the Fourth Quarter of 2009. December 2009”: Research. 2011;1(1):191- 200.
Abuja, CBN Collier, P & A. 2009;4(4). 21. Eboh EC. Agricultural economy of Nigeria:
9. Yakub MU. The impact of oil on Nigerian’s Paradoxes and Cross Roads of Multimodal
Economy: The Boom and Burst Cycle. Central Nature. 56th inaugural lecture of the University
Bank of Nigeria, Abuja, Nigeria; 2008. of Nigeria; 2011.
10. Nwosa PI, Ogunlowore AJ. Has oil revenue (Delivered on January 27, 2011)
enhanced non-oil export in Nigeria? A Co- 22. Tombofa SS. Development economics: An
Integration Approach. Journal of Economics introduction. Port Harcourt: Pearl Publishers;
and Development Studies. 2013;1(3). 2004.
11. Budina N, Van Wijnbergen S. Managing oil 23. Ukeje RO. Macroeconomics: An Introduction.
revenue volatility in Nigeria: The role of fiscal Port Harcourt: Davidson Publication; 2003.
policy. Africa at a turning point: Growth, Aid 24. Olajide OT, Akinlabi BH, Tijani AA. Resource
and External Shocks: World Bank; 2008. and economic growth in Nigeria. European
12. Ogbonna GN, Appah E. Petroleum income and Scientific Journal. October edition. 2012;8(26):
Nigerian economy: Empirical evidence. ISSN: 1857– 7881 (Print) e - ISSN 1857- 7431.
Arabian Journal of Business and Management 25. International Food Policy Research Institute.
Review (OMAN Chapter). 2012;(9). Policy Benchmarking and Tracking the
13. Baghebo M, Atima TO. The impact of Agricultural Policy Environment in Nigeria.
petroleum on economic growth in Nigeria. Abuja: IFPRI; 2010.
Global Business and Economics Research 26. Sims C. Macroeconomics and reality.
Journal. 2013;2(5):102-115. Econometrical. 1980;48(1):1-48.
14. African Economic Outlook. Nigeria-Africa 27. Ajayi S. Impact of climate change and food
Economic Outlook by African Development security in Nigeria, Department of crop
Bank and Organisation for Economic Co- production and protection, Obafemi Awolowo
operation and Development; 2004. University, Ile-Ife, in Agric show seminar,
Available:http://www.oecd.org/countries/nigeri Tundun Wada, Karu LGA, Nasarawa State,
a/32430302.pdf (Accessed on 01/07/2014). Nigeria; 2009.
15. Onyemaechi JO. Economic implications of
petroleum policies in Nigeria: An overview;
2012.
__________________________________________________________________________________________
© Copyright International Knowledge Press. All rights reserved.

86

View publication stats