The Slippery Slope of Oil - Estimating the future GDP of Nigeria with uni- and multivariate approaches

Abstract: Nigeria is, by population, the largest country in Africa and their economic growth will be a key part in the world reaching the goals of eradicating poverty. This paper investigates the economic growth performance of Nigeria and the relationship between oil and the GDP performance by using growth accounting, ARIMA, VAR and VEC models. Through the ARIMA and VAR models, the GDP is forecasted until 2050. The statistical models prove to us that oil plays an important role in the economic performance through a one-way direct effect on GDP and through a two-way effect on the capital stock. With the global need to decrease their dependency on oil, this offers up some potentially large problems for Nigeria, which is why the forecasts are important. The forecasted values of the models are rather different where the ARIMA results offer a forecast with an average growth similar to that of the last 30 years. The VAR model instead generate a forecast with an average growth rate of less than one percent. This low forecast is disturbing since it would lead to a significant drop in living standards and increase in people living in poverty. Considering the results and the previous research it seems likely that Nigeria is suffering from the Dutch disease and they need to diversify their economy to be able to generate a sustainable growth in relation to their extremely stable population growth.