The Political Economy of Petrodollars in a Mono-product Economy

Abstract

Nigeria is a mono product economy because oil accounts for over 95 percent its export earnings. About 70 percent of government revenue is derived from oil and over 90 percent of new investments are associated with oil. The current evidence is that the Nigerian economy goes through a boom-and-burst as a result of variability in the price of oil. The policy makers in Nigeria have been accused of mismanagement and incompetence. Anifowose (1995) notes that foreign exchange budgeting is based on a crude linear extrapolation of OPEC’s benchmark price for oil. The results in this paper reject the presence of linearity in oil price generating process. Therefore, policy makers need to devise a more sophisticated nonlinear forecasting mechanism in planning for economic growth and development.