Macroeconomic Implications of Economic Diversification and Oil Resource Curse on Sustainable Development in Nigeria

The paper examined the role of macroeconomic variables such real investments, trade openness, exchange rate, inflation rate, real per capital income, oil revenue in enhancing economic diversification and preventing resources curse hypothesis. It also established the threshold level for investment and the cost of avoiding the oil resource curse hypothesis for effective diversification in an oil rich African developing economy like Nigeria. Normalised Hirschman Index was used to determine degree of diversification while conventional fully modified ordinary least square (FMOLS) to estimate the models. The result showed that the systematic variation in diversification index is caused by variation in exchange rate, trade openness, inflation, gross fixed capital formation and gross domestic product and the results were not sensitive to model specification and estimation technique. The result confirmed the resource hypothesis. It is also established that there as much as 16% deficit in investment as the economy required a minimum of 30% investment as ratio GDP. Similarly, per capital income needed to stimulate economic diversification need to be raised beyond a threshold of $1380.3 billion for effective diversification. The main policy implication is that investment level and per capita income must be greater than this threshold if the vicious circle poverty and sustainable development is to be achieved in Nigeria