Oil rent, corruption and economic growth relationship in Nigeria: evidence from various estimation techniques
| Date | 19 February 2024 |
| Pages | 962-979 |
| DOI | https://doi.org/10.1108/JMLC-10-2023-0160 |
| Published date | 19 February 2024 |
| Author | Joseph David,Awadh Ahmed Mohammed Gamal,Mohd Asri Mohd Noor,Zainizam Zakariya |
Oil rent, corruption and economic
growth relationship in Nigeria:
evidence from various estimation
techniques
Joseph David
Department of Economics, FPE, Universiti PendidikanSultan Idris (UPSI),
Tanjung Malim, Malaysia and Centre for Economic Policy and Development
Research (CEPDeR), Covenant University, Ota, Nigeria, and
Awadh Ahmed Mohammed Gamal,Mohd Asri Mohd Noor and
Zainizam Zakariya
Department of Economics, FPE, Universiti Pendidikan Sultan Idris (UPSI),
Tanjung Malim, Malaysia
Abstract
Purpose –Despite the huge financial resourcesassociated with oil, Nigeria has consistently recordedpoor
growth performance. Therefore, this study aims to examine how corruption and oil rent influence Nigeria’s
economicperformance during the 1996–2021 period.
Design/methodology/approach –Various estimation techniques were used. These include the
bootstrap autoregressive distributed lag (ARDL) bounds-testing, dynamic ordinary least squares
(DOLS), the fully modified OLS (FMOLS) and the canonical cointegration regression (CCR) estimators
and the Toda–Yamamoto causality.
Findings –The bounds testing results provide evidence of a cointegrating relationship between the
variables. In addition, the results of the ARDL, DOLS, CCR and FMOLS estimators demonstrate t hat oil
rent and corruption have a significant positive impact on growth. Further, the results indicate that
human capital and financial development enhance economic growth, whereas domestic investment and
unemployment rates slow down long-term growth. Additionally, the causality test results illustrate the
presence of a one-way causality from oil rent to economic growth and a bi-directional causal
relationship between corruption and economic growth.
Originality/value –Existing studies focused on the effects of either oil rent or corruption on growth in
Nigeria. Little attention has been paid to the exploration of how the rent from oil and the pervasiveness
of corruption contribute to the performance of the Nigerian economy. Based on the outcome of this
study, strategies and policies geared towards reducing oil dependence and the pervasiveness of
corruption, enhancing human capital and financial development and reducing unemployment are
recommended.
Keywords Oil rent, Corruption, Human capital, Economic growth, Bootstrap ARDL, Nigeria
Paper type Research paper
JEL classification –C22, O13, Q32, O43
Since submission of this article, the following author has updated their affiliation: Joseph David is no
longer associated with Lagos Business School, Pan-Atlantic University, Lagos, Nigeria.
The authors express their gratitude to Sultan Idris Education University (UPSI), Malaysia, for
providing financial support for this research.
JMLC
27,5
962
Journalof Money Laundering
Control
Vol.27 No. 5, 2024
pp. 962-979
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-10-2023-0160
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
1. Introduction
The role of natural resources in promotinggrowth is well documented in early development
literature (see Rostow, 1961). The argumentis generally made on the basis that the ensuing
rents from natural resources provide governments with resources toprovide public goods
and invest in human and physical capital for development(Rosser, 2009). In recent decades,
however, natural resources and the rent accrued from its sales have been widely associated
with poor economic and social outcomes (Sachs and Warner, 1995). Rather than promoting
development, it is argued that natural resource wealth in fact reduces economic growth,
increases poverty, impairs health and education outcomes, impedes democracy, lowers the
status of women and increases the incidence, duration and intensity of civil war (Blanton
and Peksen, 2023). This position is well accentuated by the poor economic performance of
countries rich in oil, minerals andother natural resources compared with the fast growth
rates experiencedinresource-poorEast Asian countries (Sachs and Warner, 2001).
Like most countries with large deposits of natural resources, the abundance of crude oil in
Nigeria has been associated with the country’s economic sustainability (Olayungbo and
Adediran, 2017). Over the years, the sizable crude oil deposit has contributed to the economy, in
terms of increased revenue, infrastructural development and foreign investment. However,
despite the huge oil wealth, Nigeria has consistently maintained an unimpressive economic
performance compared to resource-poor countries (World Bank, 2023). For instance, while
Nigeria received about US$853.36bn in oil rent cumulatively between 1971 and 2020, current
reality suggests that revenue accrued from oil sales did not seem to add to the standard of
living of most Nigerians as the country’s per capita income has remained at the pre-1970s oil
boom periods (World Bank, 2023). Besides, the country has also been characterised by
exceptionally high rates of poverty, unemployment, income inequality, insecurity and
deteriorating standard of living, among other precarious development indicators [National
Bureau of Statistics (NBS), 2020a,2020b,2022;World Bank, 2023].
Besides the developmental challenges confronting Nigeria, the country has also
continued to contend with massive corruption, evidenced by various reports of prominent
international organisations such as Transparency International (TI), Political Risk Service
Group and the World Bank amongothers. Despite the efforts of successive administration in
tackling corruption, Nigeriahas consistently ranked high in the league of corrupt nationsin
the world. For instance, in TI’s 2022 country comparison corruption perception ranking,
Nigeria ranks low at 150 out of 180 countries,only ahead of war-torn countries such as Iraq,
Somalia, Yemen, Chad,Sudan, Libya and Syria.
Recently, evidence has shownthat in natural resource-rich countries such as Nigeria, the
dependence of the economy on the ensuing wealth tends to fuel the pervasiveness of
corruption (Arezki and Brückner,2009;Vogel, 2020). Thus, by directly influencing the level
of corruption, it is suggestive that the rent from natural resources such as oil and the
pervasiveness of corruptionwould together impair economic growth anddevelopment. This
argument is premised on the fact that oil wealth fuels pervasive corruption in oil-rich
countries, and such pervasivenessprovides an important opportunity for corrupt politicians
and officials to misappropriate, under-remit, mismanage and waste oil rents (Leite and
Weidmann, 1999).Consequently, this leads to poor economic outcomes.
Despite the unimpressive growth performance, coupled with the widespread corruption
in the country, researchers have paid little attention to assessing the effect of oil rent and
corruption on economic growthuntil recently (see Raifu, 2021;Rotimi et al.,2021;Waziri and
Azare, 2020). While the studies deserve some commendations, the presence of some
methodological weaknesses, such as the use of a small sample size, absence of important
diagnostic tests and exclusion of relevant variables, tend to affect the reliability of the
Economic
growth
relationship
963
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