AN EMPIRICAL ANALYSIS OF THE IMPACT OF OIL – BENCH MARKING ON FEDERAL GOVERNMENT REVENUE IN NIGERIA

Vitalis N. Ewereoke

Abstract


The study assesses the oil bench-marking fiscal rule so as to determine its impact on Federal Government Revenue in Nigeria using econometric model with ordinary least square (OLS) techniques. The study test for the order of integration of the variables that is the stationarity of the variables using Augmented Dickey Fuller (ADF) Test for stationary and Philips-Peron unit root test. The results revealed absence of serial correlation and all variables incorporated in the model were non-stationary at their levels. Chow test was applied in testing the three hypotheses formulated. The result revealed the rejection of the null hypotheses and hence the acceptance of the alternate hypotheses. In otherwise the Nigerian economy had been decoupled or delinked from the oil revenue volatility. In an attempt to establish short run and long run relationships between real government expenditure and real oil revenue. Error correction mechanism was applied. The result also reveals reduction in the percentage of the discrepancy between short-term and long term real government expenditure that is corrected within a year from 76% to 58%. Indicating the effectiveness of the Nigeria-oil-price based fiscal rule. In other words, Oil bench marking fiscal policy has impacted significantly on revenue from the oil sector. In addition, it also has a significant effect on federal Government capital expenditure. The policy also impacted significantly on Nigeria external reserves. However the following factors were also identified as contributing to Nigerian volatility challenge. Oil driven nature of the economy, small size of the economy and the degree of global integration. Discovered also were corruption and high degree of openness. We therefore recommended among other things the continued adoption of the Nigerian oil price based fiscal rule, (oil bench marking) addressing the issue of corruption and transparency, more sustained reform in the area of diversification of the economy.

Keywords


Oil Bench Mark, Federal Government Revenue, Fiscal Policy and Economy

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