Federal Government Revenue and Its Relationship with Economic Growth in Nigeria (1993-2023)

Tan, Weng Sze (2025) Federal Government Revenue and Its Relationship with Economic Growth in Nigeria (1993-2023). Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This research examines the relationship between federal government revenue and economic growth in Nigeria over the period 1993 to 2023. Motivated by the persistent revenue volatility and Nigeria’s heavy reliance on oil receipts, the study employs the Vector Error Correction Model (VECM) to explore both short-run adjustments and long-run equilibrium dynamics. Real GDP is specified as the dependent variable, while federal government revenue, inflation, exchange rate, and government expenditure are included as explanatory variables. Data are obtained from reliable secondary sources, including the Federal Ministry of Finance, the Central Bank of Nigeria, Macrotrends LLC, and World Bank Open Data. A series of econometric procedures, such as unit root tests, Johansen cointegration analysis, Granger causality, and diagnostic checks, are conducted to ensure robustness and reliability of the results. The findings reveal that fluctuations in federal revenue, largely driven by oil prices, significantly influence Nigeria’s economic growth. While oil revenue continues to play a dominant role, non-oil revenue contributes positively but remains underdeveloped, reflecting structural weaknesses in tax administration and governance. The results also show that inflation and exchange rate volatility exert adverse effects on growth, whereas government expenditure demonstrates a growth-enhancing impact when efficiently allocated. Importantly, the VECM results confirm the existence of a long-run equilibrium relationship among the variables, although short-run dynamics indicate persistent revenue instability. The study concludes that Nigeria’s fiscal dependence on oil revenue creates vulnerability to external shocks, undermining sustainable growth. Policy recommendations include broadening the non-oil revenue base, strengthening tax administration, improving public financial management, and ensuring more productive use of government expenditure. By providing fresh evidence from a three-decade dataset, this research contributes to the literature on fiscal policy and economic growth in resource-dependent economies. Future studies may extend the analysis by incorporating subnational revenues or comparative perspectives across African oilproducing countries.