Asymmetric effects of oil revenue shocks on government spending composition and productive sectors: new evidence from Nigeria

Oil revenue plays an important role in meeting government obligations in Nigeria. It accounts for almost 90 per cent of the total export earnings and government spending. Given the high relevance of oil in Nigeria, this paper examines the asymmetric effects of oil revenue shocks on government spending and the real sectors from 1970 to 2017. We find no long-run equilibrium relationships among oil revenue and the variables of interest. However, when we allow for non-linear relationship, cointegration is found to exist only for negative oil revenue and the variable of interest. Both the asymmetric variance decomposition and the generalised asymmetric impulse response function show positive responses of agricultural output and capital expenditure to negative oil revenue shocks while only manufacturing output and recurrent expenditure respond negatively. We recommend that the government should not depend solely on oil export as the major source of revenue but also create incentive in the non-oil sectors for complementary revenue generation.