Oil Revenue Fluctuation, Fiscal Policy Response and Economic Growth in Nigeria

This study examines the link between oil revenue fluctuations, fiscal policy, and economic performance in Nigeria from 1981 to 2023. The main objective is to evaluate how changes in oil revenue influence fiscal decisions, particularly government expenditure and their combined effect on GDP growth. Using annual time series data, the study employs both Ordinary Least Squares (OLS) and the Autoregressive Distributed Lag (ARDL) model to capture short- and long-run dynamics. The OLS estimates indicate that oil revenue and government expenditure have a positive and statistically significant impact on GDP, while inflation negatively affects growth. The ARDL bounds test confirms a long-run equilibrium relationship among the variables. In the short run, oil revenue changes produce immediate effects on fiscal spending, while government expenditure adjusts gradually to reflect revenue conditions. The study recommends diversifying revenue sources beyond oil, adopting a counter-cyclical fiscal framework, and improving the transparency of oil-related spending. Strengthening institutions to manage oil windfalls and reduce fiscal volatility will enhance macroeconomic stability and long-term economic growth. The findings reinforce the critical role of prudent fiscal policy in oil-dependent economies like Nigeria.