Effect of Non-Oil Revenue on Economic Growth of Nigeria

Abstract

This study investigates the effect of non-oil revenue on economic growth in Nigeria, focusing on tax revenue, fees, fines, and government investment returns from 1990 to 2024. Recognizing the country’s heavy reliance on oil revenue and its associated vulnerability to price fluctuations, the research emphasizes the need for fiscal diversification to sustain economic growth. Using a comprehensive methodological framework, the study employs descriptive statistics to summarize trends and variability in the data, correlation analysis to examine the relationships among non-oil revenue components and real GDP, and unit root tests (ADF and Phillips–Perron) to establish stationarity properties. Cointegration analysis is conducted to determine the presence of long-run equilibrium relationships, and the Vector Error Correction Model (VECM) is applied to capture both short-term dynamics and long-term adjustments. The results indicate that tax revenue has the strongest and most consistent positive impact on economic growth, while fees and fines contribute moderately, and government investment returns exhibit delayed but significant effects over the long term. The error correction term confirms that deviations from long-run equilibrium are gradually corrected, highlighting the resilience of non-oil revenue channels in stabilizing output. The study further finds that efficient revenue administration, compliance enforcement, and prudent management of state-owned enterprises enhance the growth effects of non-oil revenue. The findings underscore the importance of broadening the non-oil revenue base, improving collection mechanisms, and reinvesting public earnings into productive sectors to reduce dependence on oil and promote sustainable economic growth. The study contributes to policy formulation by providing evidence-based insights into the role of fiscal diversification in Nigeria’s macroeconomic stability.