The Moderating Role of Corruption in the Oil Price-Economic Growth Relationship in an Oil-Dependent Economy: Evidence from Bootstrap ARDL with a Fourier Function

Abstract

This study employs the recently proposed bootstrap autoregressive distributed lag (ARDL) model, augmented with a Fourier function, and the dynamic ARDL simulation procedures, to examine whether the oil price economic growth relationship depends on the level of corruption in an oil-dependent economy. Using Nigerian quarterly data from the 1996Q1–2021Q4 period, the results of the bounds-testing provide evidence of cointegration between the variables. In addition, the results indicate that oil price and corruption are growth-enhancing, but the effect of oil price on growth is contingent on the level of corruption. Moreover, evidence suggests that the marginal effect of oil price on economic growth varies with the level of corruption: the lower the level of corruption, the higher the growth-enhancing effect of oil price on economic growth, and vice versa. The dynamic ARDL simulation plots demonstrate a significant increase (decrease) in predicted growth in the short term due to a counterfactual rise in the price of oil (corruption), which gradually deflates (increases) after the shock in the long term. Therefore, policies geared toward diversifying the economy away from oil, reducing corruption in the oil and gas industry and the security sector, improving agricultural output, and reducing the unemployment rate are recommended to enhance growth.