THE REAL SECTOR AND THE SERVICE SECTOR
PERFORMANCES IN NIGERIA: ANY CURSE FROM THE OIL RESOURCE ABUNDANCE?
Augustine Chidiebere OSIGWE
E-mail address: [email protected].: +234 8038728652
Outline of the Presentation Introduction and Problem statement Objectives of the Study Justification for the study Scope of the study Analysis of sectoral performances Alternative definitions and measurement of
resource abundance Empirical literature review Theoretical Framework and Methodology Empirical results Conclusion Policy Recommendations
IntroductionLink exist between resource-abundance
and a number of socio-economic problemsIn Nigeria, crude oil has been a major
source of revenue, energy and foreign exchange in Nigeria.
Given the role of the oil sector, there is the compelling need for a desirable and appropriate production and export policy for the sector.
Problem StatementNigeria as a net oil exporter since the
1970s, marked a new and often volatile era in its economic history.
Before oil, primary agricultural produce were the main exports.
There is the problem of successfully translating the huge oil wealth into sustainable development.
Increases in the prices of non-tradable goods and services, thus hurting the rest of the tradable goods sector in Nigeria.
Objectives of the StudyIn broad objective is to examine the
effects of oil resource abundance on investment and sectoral output in Nigeria. The specific objectives are:
To estimate the effects of oil resource abundance on investment in the real sector and the service sector of the Nigerian economy.
To analyze the magnitude of the effects of oil resource abundance on the output of these sectors.
Justification for the study
The justification is threefold – covering theoretical, methodological and empirical issues.
Theoretically, his study aims to establish innovative ties and robust bridge between the channel and impact approaches.
Methodologically, the macro-econometric method of analysis is adopted.
Empirically, since this study will not examine just as the same variables as most previous studies, its empirical results will be obviously different.
Scope of the study
The sectors of interest to this study are; agriculture and service.
The study period is 1970 to 2010.
Analysis of sectoral performances Figure 2.1: Agricultural Sector Composition of Real GDP in Nigeria
Source: Analysis of data from the CBN (2011).
64.27
44.74
20.61
32.7 31.52 34.19 35.83 41.19 41.84
1960 1970 1980 1985 1990 1995 2000 2005 2010
Agric Sector Percentage Composition of RGDP
Figure 2.2: Crude Oil Sub-Sector Composition of Real GDP
Source: Analysis of data from the CBN (2011).
Crude Oil Sub-Sector Percentage Composition of RGDP1960 0.441970 11.041980 21.411985 35.891990 37.471995 33.242000 32.452005 24.262010 16.05
05
10152025303540
Crude Oil Sub-Sector Percentage Composition of RGDP
Figure 2.3: Agricultural Sector and Crude Oil Sub-Sector Composition of Real GDP
Source: Analysis of data from the CBN (2011).
0.44
11.04
21.41
35.89 37.47 33.24 32.45
24.26
16.05
64.27
44.74
20.61
32.7 31.52 34.19 35.83
41.19 41.84
0
10
20
30
40
50
60
70
1960 1970 1980 1985 1990 1995 2000 2005 2010
Crude Oil Sub-Sector Percentage Composition of RGDP
Agric Sector Percentage Composition of RGDP
Figure 2.4: Services Sector Percentage Composition of Real GDP
Source: Analysis of data from the CBN (2011).
02468
101214161820
Service Sector Percentage Composition of RGDP1960 12.991970 18.451980 15.051985 9.451990 10.251995 11.552000 12.122005 15.212010 17.5
Per c
ent
Alternative definitions and measurement of resource abundance
Share of primary commodity exports in GDP (Sachs and Warner, 1995)
Net present value of the stream of rents (World Bank , 1997, 2005).
Natural resource exports, production, or reserves (Stijns, 2005).
Ratio of windfall profits from oil to GNP (Ross, 2006).
Net exports per capita (Perry et al., 2011).Ratio of revenues from petroleum and minerals
to total government revenues (Herb, 2005).
Alternative definitions and measurement Cont.
this study adopts the Herb (2005). The reasons for this are two-fold; The measure aptly captures the
Nigerian situation where a great chunk of the government fiscal actions draw heavily from the activities in the oil sector.
It enables us to capture the “fiscal impact of oil” on the Nigerian economy.
Empirical literature review
empirical debates on the effects of natural resource abundance seem inconclusive and produce mix results
Long run effect of oil abundance on GDP is positive and significant (Moradi, 2007, Iran, 1968 - 2005.)
Adverse nexus between exports related natural resources as ratio of GDP and economic growth (Hussain et al, 2009, Pakistan,1975-2006).
A permanent oil shock resulted in manufacturing production reductions (Ismail, 2010, 90 countries).
Theoretical Framework and Methodology
Dutch disease framework developed by Corden and Neary (1982). Why the choice?
First, it is capable of revealing many historical episodes where there have been sectoral boom, with adverse or favourable effects on other sectors.
Second, it provides a systematic analysis of some aspects of structural changes in a small open economy.
Lastly, it is suitable in countries where the proceeds from resource abundance accrue directly to the government.
Formulation of the model
The variations in the investment and output of the sectors are hypothesized as a function of oil resource abundance plus the control variables. This is algebraically expressed as;
Variations in investment and output in Agric, and Serv, = f(oil resource abundance + control variables)
The ModelsThe supply block model
The demand block model
Empirical results
The test for stationarity shows that 4 out of 14 variables are stationary at level. All others only became stationary after first differencing.
Results for the Outputs
The Agricultural Output Function Result
Variable 2SLS Coefficient t-statistic
C 5.6136 2.9676 ORA -0.5631 -1.7784 RGDP -0.0161 -0.3606 ATRFALL 0.0064 0.0575 RLR 0.0095 1.3121 MS 0.1106 2.2651 REXR 0.0003 0.9201 AGI -0.0764 -2.4938 AGY(-1) 0.4861 2.5875 Adj R2 0.91
The Services Output Function Result
Variable 2SLS Coefficient t-statistic
C 0.5491 0.5267 ORA -0.0876 -0.2616 RGDP -0.0976 -2.3705 MS 0.0892 3.2886 REXR 0.0001 0.2896 SVI -0.0388 -2.3762 RLR -0.0034 -0.4551 MANY 0.4349 3.0374 SVY(-1) 0.6619 6.6784 Adj R2 0.91
Results for InvestmentsThe Agricultural Investment Function Result
Variable 2SLS Coefficient t-statistic
C 41.1535 2.9436 ORA -7.3260 -1.9412 RGDP 0.1308 0.4391 RIR -0.0474 -1.7207 P 0.7707 2.4215 REXR 0.0014 0.6419 AGI(-1) 0.3407 1.6972 AGY -2.7324 -1.8592 IMCG 0.0405 0.0737 Adj R2 0.58
The Services Sector Investment Function Result
Variable 2SLS Coefficient t-statistic
C 13.2003 1.8270
ORA 1.8704 0.5192
SVI(-1) 0.6389 4.7761
SVY(-1) -0.7611 -1.0490
RIR 0.0092 0.3790
REXR -0.0009 -0.3246
P -0.1242 -0.4548
RGDP -0.0152 -0.0438
Ajd R2 0.51
Validation of the Macroeconomic Model
Summary Statistics of Validation of the Macroeconomic Model
S/N Variable Theil’s inequality
Bias proportion
Variable proportion
Covariance proportion
1. AGI: 0.02630 0.0069 0.1311 0.9895 2. AGY: 0.0075 0.0007 0.0104 0.9895 3. SVI: 0.0394 0.0002 0.4600 0.5399 4. SVY: 0.0109 0.0000 0.0617 0.9383
ConclusionOil resource abundance (ORA) has
negative and significant effect on the agricultural sector output and investment.
ORA has a negative and insignificant effect on the service sector’s output and a positive but highly insignificant relationship with the sector’s investment.
Policy RecommendationsThe government should subsidize the ailing
agriculture sector.Basic infrastructures that enable the
service sector to thrive should be provided.The right policy mix which includes
macroeconomic stability, efficient management of oil revenue, economic diversification as well as accumulation of human, institutional and social capital is what Nigeria needs to deal with the Dutch disease effects of oil resource abundance.
Thank you for your Attention.
