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Dynamic Effects of Oil Revenue on Revenue Generation in Nigeria: A Long-Run and Short-Run VECM Analysis
Subject area: Science,Engineering and Technology · Area of research: Financial Statistics
DOI: https://doi.org/10.64388/IREV10I1-1719773
Abstract
This study examines the dynamic effects of oil revenue on revenue generation in Nigeria using a Vector Error Correction Model (VECM) to capture both long-run and short-run relationships. The Augmented Dickey-Fuller (ADF) unit root test shows that all variables are integrated of order one, I(1). The lag selection criteria indicate an optimal lag of one, and the cointegration test confirms a long-run equilibrium relationship among the variables. The VECM results reveal that oil revenue has a significant long-run effect on revenue generation in Nigeria, with a coefficient of -0.88845 and t-statistic value of [-30.2226]. Exports also significantly influence revenue generation in the long run with a coefficient of 0.60397 and t-statistic value of [4.39911]. The error correction term indicates that about 40.36% of short-run deviations from equilibrium are corrected annually. Diagnostic tests show no evidence of serial correlation, although residuals are not perfectly normally distributed. The study recommends that government should adopt effective forecasting and monitoring strategies to enhance revenue generation in Nigeria.
Keywords
Revenue Generation; Oil Price; Export; Vector Error Correction Model.
How to cite this paper
@article{1719773,
author = {N. O Nweze, A. Ibrahim, Kawu A. S, B. Maijama’a},
title = {Dynamic Effects of Oil Revenue on Revenue Generation in Nigeria: A Long-Run and Short-Run VECM Analysis},
journal = {Iconic Research And Engineering Journals},
year = {2026},
volume = {10},
number = {1},
pages = {1560-1568},
issn = {2456-8880},
url = {https://www.irejournals.com/formatedpaper/1719773.pdf},
abstract = {This study examines the dynamic effects of oil revenue on revenue generation in Nigeria using a Vector Error Correction Model (VECM) to capture both long-run and short-run relationships. The Augmented Dickey-Fuller (ADF) unit root test shows that all variables are integrated of order one, I(1). The lag selection criteria indicate an optimal lag of one, and the cointegration test confirms a long-run equilibrium relationship among the variables. The VECM results reveal that oil revenue has a significant long-run effect on revenue generation in Nigeria, with a coefficient of -0.88845 and t-statistic value of [-30.2226]. Exports also significantly influence revenue generation in the long run with a coefficient of 0.60397 and t-statistic value of [4.39911]. The error correction term indicates that about 40.36% of short-run deviations from equilibrium are corrected annually. Diagnostic tests show no evidence of serial correlation, although residuals are not perfectly normally distributed. The study recommends that government should adopt effective forecasting and monitoring strategies to enhance revenue generation in Nigeria.},
keywords = {Revenue Generation; Oil Price; Export; Vector Error Correction Model.},
month = {July},
doi = {https://doi.org/10.64388/IREV10I1-1719773}
}