Download THE REAL SECTOR AND THE SERVICE SECTOR PERFORMANCES …

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]
Tel.: +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
resource abundance
 Empirical literature review
 Theoretical Framework and Methodology
 Empirical results
 Conclusion
 Policy Recommendations
of
Introduction
Link exist between resource-abundance and a
number of socio-economic problems
 In 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 Statement




Nigeria 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 Study
In 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
Agric Sector Percentage Composition of RGDP
64.27
44.74
32.7
31.52
1985
1990
34.19
35.83
1995
2000
41.19
41.84
2005
2010
20.61
1960
1970
1980
Source: Analysis of data from the CBN (2011).
Figure 2.2: Crude Oil Sub-Sector Composition of Real GDP
Crude Oil Sub-Sector Percentage Composition of
RGDP
40
35
30
25
20
15
10
5
0
Crude Oil Sub-Sector Percentage Composition of RGDP
1960
0.44
1970
11.04
1980
21.41
1985
35.89
1990
37.47
1995
33.24
2000
32.45
2005
24.26
2010
16.05
Source: Analysis of data from the CBN (2011).
Figure 2.3: Agricultural Sector and Crude Oil Sub-Sector Composition of Real GDP
70
64.27
60
50
44.74
37.47
35.89
34.19 32.4535.83
33.24
32.7
31.52
40
30
41.19
41.84
24.26
21.4120.61
20
16.05
11.04
10
0.44
0
1960
1970
1980
1985
1990
1995
2000
Crude Oil Sub-Sector Percentage Composition of RGDP
Agric Sector Percentage Composition of RGDP
Source: Analysis of data from the CBN (2011).
2005
2010
Per cent
Figure 2.4: Services Sector Percentage Composition of Real GDP
20
18
16
14
12
10
8
6
4
2
0
1960
Service Sector Percentage Composition of RGDP
12.99
1970
18.45
1980
15.05
1985
9.45
1990
10.25
1995
11.55
2000
12.12
2005
15.21
2010
17.5
Source: Analysis of data from the CBN (2011).






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 Models
The 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
C
ORA
RGDP
ATRFALL
RLR
MS
REXR
AGI
AGY(-1)
2
Adj R
2SLS
Coefficient
t-statistic
5.6136
-0.5631
-0.0161
0.0064
0.0095
0.1106
0.0003
-0.0764
0.4861
0.91
The Services Output Function Result
Variable
2.9676
-1.7784
-0.3606
0.0575
1.3121
2.2651
0.9201
-2.4938
2.5875
C
ORA
RGDP
MS
REXR
SVI
RLR
MANY
SVY(-1)
2
Adj R
2SLS
Coefficient
t-statistic
0.5491
-0.0876
-0.0976
0.0892
0.0001
-0.0388
-0.0034
0.4349
0.6619
0.91
0.5267
-0.2616
-2.3705
3.2886
0.2896
-2.3762
-0.4551
3.0374
6.6784
Results for Investments
The Agricultural Investment Function Result
The Services Sector Investment Function Result
Variable
Variable
2SLS
Coefficient
C
ORA
RGDP
RIR
P
REXR
AGI(-1)
AGY
IMCG
2
Adj R
Coefficient
t-statistic
41.1535
-7.3260
0.1308
-0.0474
0.7707
0.0014
0.3407
-2.7324
0.0405
0.58
2SLS
2.9436
-1.9412
0.4391
-1.7207
2.4215
0.6419
1.6972
-1.8592
0.0737
C
ORA
SVI(-1)
SVY(-1)
RIR
REXR
P
RGDP
Ajd R2
t-statistic
13.2003
1.8270
1.8704
0.5192
0.6389
4.7761
-0.7611
-1.0490
0.0092
0.3790
-0.0009
-0.3246
-0.1242
-0.4548
-0.0152
-0.0438
0.51
Validation of the Macroeconomic
Model
Summary Statistics of Validation of the Macroeconomic Model
S/N Variable
1.
2.
3.
4.
AGI:
AGY:
SVI:
SVY:
Theil’s
inequality
0.02630
0.0075
0.0394
0.0109
Bias
proportion
0.0069
0.0007
0.0002
0.0000
Variable
proportion
0.1311
0.0104
0.4600
0.0617
Covariance
proportion
0.9895
0.9895
0.5399
0.9383
Conclusion

Oil 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 Recommendations
The
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.