Crude Oil Discovery and Exploitation: The Bane of Manufacturing Sector Development in an Oil‐Rich Country, Nigeria

Abstract

This paper investigates the impact of crude oil boom on the economy of Nigeria particularly the manufacturing sector. In the study, a descriptive analysis of the three major sectors of the economy is undertaken followed by the formulation of a vector autoregression model depicting the relationship existing among the sectors - resource, manufacturing and service. The model was subsequently estimated using appropriate techniques such as unit root test, cointegration test, causality test, variance decomposition and parametric estimation. The unit root and cointegration tests reveal that the data series employed are reliable and the three sectors are most likely to converge in the long run, which augurs well for policy making. The causality test, variance decomposition and parametric estimation reveal that the oil boom led to significant stagnation in the manufacturing sector and a marginal decline in the service sector. The growth of manufacturing sector of Nigeria has thus been severely impaired by the oil boom. In light of this, adequate policy measures need to be taken to resuscitate the manufacturing sector. These measures may include attracting more foreign investment, reducing operating cost in the sector, developing local sources of raw materials, and allocation of more funds from the crude oil revenue to assist the sector. These policy measures may not only resuscitate the manufacturing sector, they would also accelerate growth of the economy as a whole.