Investigating the Role of Diversification on Economic Growth in Nigeria; New Evidence from SVARs

Open Access

Abstract

Fluctuations in oil prices have caused economic contractions and challenges to oil-exporting economies. In particular, Nigeria suffers both the previous and current global oil price shocks and this has raised concerns among policymakers, governments, and economic analysts because of the impact of oil and oil prices in Nigeria's macroeconomic development. However, this paper investigates the role of diversification on economic growth in Nigeria using annual data from 1986 to 2018. The techniques applied showed that only remittances and official development assistance have affected economic growth in the short run. However, the coefficients of one period lagged indicated that the system is capable of adjusting to its long-run equilibrium condition after some shocks in the system. The findings from variance decomposition indicated that diversification plays a positive role on economic growth in both the short and long-run horizons. By overall implication, the study concludes that diversification has a positive role on Nigeria's economic growth. Therefore, the study recommends the need for the government to provide active and inclusive policies such as soft loans and commercial agricultural programs to improve its export of agricultural output competitiveness, improve supervisory and regulatory frameworks in the financial sector to ease remittances inflow. For these reasons, diversifying the economy from oil revenue is the ultimate goal for achieving sustainable economic growth and development goals or targets by the year 2030.