Identifying Domestic Macroeconomic Drivers for Economic Diversification in Nigeria

Abstract

Evidences in the literature show that Nigeria’s consumptionist nature as well as its heavy dependence on crude oil income streams, have created room for growing unemployment, inflation and poverty rates as well as the recent shrink in its GDP growth rate. More so, the unpredictable movements in global oil price demonstrate the need for Nigeria to diversify its revenue streams in order to remain relevant and ranked amongst the vigorous economies of Africa. Based on the United Nations Industrial Organization (UNIDO)/World Bank success yardsticks and with its theoretical framework rooted in the endogenous growth model, this paper interrogated the domestic macroeconomic drivers of economic diversification in Nigeria. Employing time series for the period 1981 to 2016 data from the World Development Indicators, the study found that the drivers of economic diversification were improved infrastructure, increased credit from financial sector, reduction in lending rate and increased domestic investment while deterrents of diversification were over dependence on natural resources, trade openness, school enrollment, exchange rate depreciation and the size of the economy. We recommended deliberate and conscious policies to reduce the over dependence of the economy. These include fiscal federalism (aimed at eliminating non-inclusive growth) and increased transparency in the extractive industry. We also recommended increased investment in infrastructure (aimed at reducing transmission and distribution losses) and developments in the financial sector (so as to make cheap credit facilities available to domestic investors).