An Analysis of Declining Oil Revenue Implications on Oil-Exporting Countries: An ARDL Bound Test Approach for Nigeria and Venezuela.

Abstract

This study is a comparative analysis of declining oil revenue implications on oil-exporting countries, the case of highly oil-dependent nations; Nigeria (West Africa) and Venezuela (South America). The Autoregressive Distributed Lag (ARDL) Bound Test Approach was employed for the estimation of the parameters of the model.  Yearly time series data for 40 years (1981-2020) were employed for the empirical analyses.  However, the unit root tests were first carried out using the Augmented Dickey-Fuller (ADF) and Philips Peron’s (PP) Tests.  The Unit Root results indicate that all the variables of the model are stationary at level I(0) and at first difference I(1).  This outcome was the basis for the choice of the ARDL estimation technique for the analyses.  Contrary to expectation, the findings for both Nigeria and Venezuela reveal that government expenditure increases for a per cent decline in oil price. The findings further reveal that the increasing expenditures in both economies are financed mainly through borrowing and seigniorage.  The results also show that there is a substantial decline in government revenues of both countries for a per cent decline in oil price.  It however, shows that these nations are overwhelmingly relying on oil exports for the nations’ sustainability.  Given the above findings, it is highly recommended that both Nigeria and Venezuela diversify their revenue base, develop other sectors of the economies since the nations are endowed with other natural resources aside from oil, and restore security which would help in attracting foreign investors and ensure effective management of government funds. However, an economic model has been proposed to help in closing the revenue gaps in these highly oil-dependent nations.