Effects of Oil Revenue and Institutional Quality on Economic Growth with an ARDL Approach

Abstract

ABSTRACT This article examines the effects of oil revenue and institutional quality on economic growth in Nigeria using annual data from 1984 to 2014. The ARDL model employed shows the existence of long-run equilibrium among oil revenue, institutional quality, and economic growth. The short-run analysis indicates that institutional quality measured by corruption index promotes economic growth, while institutional quality retards economic growth in the long run. Also, oil revenue promotes economic growth in the short run and reduces it in the long run, thereby confirming the existence of the resource curse hypothesis in Nigeria. The impulse response analyses further support the ARDL results. The article, therefore, concludes that institutional quality is important in explaining the relationship between oil revenue and economic growth in Nigeria. We recommend that the government should institute anti-corruption policies to mitigate corruption and to improve institutional quality in the country in order to ensure sustainable growth per capita, to protect existing investment, and to attract new investment in the country at large.