Impact of oil sector on macroeconomic stability of the Nigerian economy

The study investigates the impact of the Nigerian oil sector on macroeconomic stability of the economy by carrying out an empirical analysis. Data on relevant variables was collected for the period 1981 to 2015. The study employed the Augmented Dickey Fuller (ADF) Test for Unit Root to determine the order of integration of the variables. ADF test result shows all variables to be integrated of order one, signifying that the variables only became stationary after taking their first difference. Johansen cointegration test was employed to determine whether or not the variables have long run association. Findings of the cointegration test shows the presence of long run association between the variables. Long run relationship estimated result shows price of crude oil, and oil revenue as having a significant positive impact on economic growth of Nigeria. Short run causality result showed that only oil revenue has a causal relationship with economic growth in the short run. Findings of the Impulse Response Function (IRF) plot shows the response of economic growth to shocks in oil revenue and oil price to be positive though the response to shocks in oil revenue appears to fizzle out with as we move into time horizon. The study recommended among others the need for diversification of the Nigeria’s economy from its mono-cultural nature of excessive dependence on oil to other viable sectors such as the agricultural sector which we are yet to tap to its full potentials. Proceeds from oil sales should be directed towards the development of the agricultural and manufacturing sector so as to avert the Dutch disease syndrome for Nigeria.