Assessing the impact of oil rent on living standards in Nigeria: Evidence from an ARDL Model

Zakaree Saheed; Lawal Omotunde

doi:10.22437/ppd.v12i4.36695

Authors

Zakaree Saheed Department of Economics, Faculty of Management Sciences Nigerian Defence Academy, Kaduna, Nigeria
Lawal Omotunde Department of Economics, Faculty of Management Sciences Nigerian Defence Academy, Kaduna, Nigeria

DOI:

https://doi.org/10.22437/ppd.v12i4.36695

Keywords:

Living standard, Natural resources, Oil price, Oil rent

Abstract

Some countries are naturally endowed with abundant natural resources, which serve as a significant source of government revenue for national development. Conversely, other countries lacking such resources rely on alternative means to generate income for their developmental efforts. The disparity in development and living standards among nations, however, cannot be attributed solely to the unequal distribution of natural resources but rather to the effectiveness and efficiency with which resource revenues are utilized. This study examines the effect of oil rents on living standards in Nigeria using the Autoregressive Distributed Lag (ARDL) model. The findings reveal a positive long-run relationship between Living Standard (LS), Oil Rent (OR), and Gross Domestic Product (GDP), while a negative relationship is observed with Oil Price (OP) and Exchange Rate (ER). However, these relationships are found to be statistically insignificant. In the short run, the results show a negative and statistically significant relationship between living standards and the variables of Oil Rent, Oil Price, GDP, and Exchange Rate. These findings highlight the complex dynamics between oil rents and living standards, particularly in the context of short-run economic fluctuations. In light of these results, the study recommends that the government prioritize making all refineries operational to meet domestic fuel demand and reduce the costs associated with fuel importation, which consumes a substantial portion of the country's earnings from oil exports. Furthermore, revenues from oil exports should be channeled into productive projects that directly improve the living standards of citizens, such as investments in infrastructure, healthcare, and education. These measures are essential for ensuring that the wealth generated from natural resources translates into sustainable development and improved quality of life for the populace.

Downloads

Download data is not yet available.

References

Adabor, O., & Buabeng, E. (2021). Asymmetrical effect of oil and gas resource rent on economic growth: Empirical evidence from Ghana. Cogent Economics & Finance, 9(1). https://doi.org/10.1080/23322039.2021.1971355

Adeloju, B. (2022, May 23). Nigeria earned $394bn oil revenue in 10 years. The Cable. https://www.thecable.ng/

Amadeo, K. (2022). Standard of living: Where is the best standard of living? It depends whom you ask. The Balance Money. Retrieved from https://www.thebalancemoney.com/standard-of-living

Asiegbu, M. F., Ikeanyibe, O. M., Abang, P. O., Nwosu, O. C., & Ugwu, C. E. (2024). Natural resource fund governance and the institutionalization of rent-seeking in Nigeria’s oil sector. Politics & Policy, 52(1), 169–195. https://doi.org/10.1111/polp.12579

Badeeb, R. A., Szulczyk, K. R., & Lean, H. H. (2021). Asymmetries in the effect of oil rent shocks on economic growth: A sectoral analysis from the perspective of the oil curse. Resources Policy, 74, 102326. https://doi.org/10.1016/j.resourpol.2020.102326

Belarbi, Y., Hamdi, F., Khalfi, A., & Souam, S. (2021). Growth, institutions and oil dependence: A buffered threshold panel approach. Economic Modelling, 99, 105477. https://doi.org/10.1016/j.econmod.2021.02.018

Brown, S. P. A., & Huntington, H. G. (2017). OPEC and world oil security. Energy Policy, 108, 512–523. https://doi.org/10.1016/j.enpol.2017.06.034

Caselli, F., & Michaels, G. (2013). Do oil rents improve living standards? Evidence from Brazil. American Journal of Applied Economics, 5(1), 208–308.

Charfeddine, L., & Barkat, K. (2020). Short- and long-run asymmetric effects of oil prices and oil and gas revenues on the real GDP and economic diversification in oil-dependent economies. Energy Economics, 86, 104680. https://doi.org/10.1016/j.eneco.2020.104680

Corporate Finance Institute. (2020). Standard of living. Retrieved from https://www.corporatefinanceinstitute.com/resources/economics/standard-of-living

Ebeke, C. H., & Omgba, L. D. (2011). Oil rents, governance quality, and the allocation of talents in developing countries. CERDI Etudes et Documents, E 2011/23.

El-Katia, F., Fatiouh, M., & Segal, P. (2011). Anatomy of an oil-based welfare state: Rent distribution in Kuwait. Kuwait Programme on Development, Governance and Globalisation in the Gulf States.

Ewubare, D. B., & Okpani, A. O. (2018). Poverty and income inequality in Nigeria (1980–2017). International Journal of Advanced Studies in Ecology, Development and Sustainability, 5(1), 138–151.

Ezekwel, C. I., Ottol, G., Ozigbu, J. C., & Morris, R. (2022). Oil rents and human development outcomes in Nigeria: Evidence from a non-linear bounds approach to co-integration. Saudi Journal of Economics and Finance, 6(1), 57–62. https://doi.org/10.36348/sjef

Georgia Public Broadcasting. (2022). Standard of living. Retrieved from https://www.gpb.org/education/econ-express/standard-living

Grigoli, F., Herman, A., & Swiston, A. (2019). A crude shock: Explaining the short-run impact of the 2014–16 oil price decline across exporters. Energy Economics, 78, 481–493. https://doi.org/10.1016/j.eneco.2018.11.025

Hasanov, F. J., Aliyev, R., Taskin, D., & Suleymanov, E. (2023). Oil rents and non-oil economic growth in CIS oil exporters: The role of financial development. Resources Policy, 82, 103523. https://doi.org/10.1016/j.resourpol.2023.103523

Mbingui, C., Owonda, F., & Diakabana, M. (2021). Effects of oil rents on economic development in the Republic of Congo. Theoretical Economics Letters, 11, 587–602. https://doi.org/10.4236/tel.2021.113039

Njangang, H., Asongu, S. A., Tadadjeu, S., Nounamo, Y., & Kamguia, B. (2022). Governance in mitigating the effect of oil wealth on wealth inequality: A cross-country analysis of policy thresholds. Resources Policy, 76, 102561. https://doi.org/10.1016/j.resourpol.2022.102561

Okafor, C. (2018, December 22). NEITI: Nigeria earned $677bn from crude oil sales in 18 years. This Day. https://www.thisdaylive.com

Ologunde, I. A., Kapingura, F. M., & Sibanda, K. (2020). Sustainable development and crude oil revenue: A case of selected crude oil-producing African countries. International Journal of Environmental Research and Public Health, 17(18), 6799. https://doi.org/10.3390/ijerph17186799

Osintseva, M. A. (2022). Influence of oil factor on economic growth in oil-exporting countries. International Journal of Energy Economics and Policy, 12(1), 217–224. https://doi.org/10.32479/ijeep.11794

Saheed, Z., & Alofun, G. O. (2010). Nigeria, five decades of sovereignty: Rich but poor. Proceedings of the Fifth International Conference on Development.

Stets, R. (2020). List of natural resources in Nigeria and their locations. Legit. https://www.legit.ng

Yin Fah, B. C. (2010). Living standard, living level and economic wellbeing of older persons: Similarity and difference in measuring the concepts. Canadian Social Science, 5(6), 145–150.

World Bank. (2022). Metadata glossary. Retrieved from https://databank.worldbank.org/metadataglossary/adjusted-net-savings/series