Revisiting the Nexus between Oil Rents and Financial Development in Nigeria : The Threshold Regression Approach

The study challenged the findings of Beck (2011) that resource-rich countries and oil-exporting developing countries are characterized by lower levels of financial development, and like past studies, utilized the two-stage least squares to estimate the linear impact of oil rents on financial development in Nigeria over the period 1981 to 2017. Results showed that oil rents exert negative influence on financial development in Africa's largest oil exporting country. Also re-examined was the nexus between oil rents and financial development by accounting for nonlinearities using the threshold regression approach developed by Hansen (1999). Results revealed that the impact of oil rents on financial development is an increasing function of the level of oil rents. 14% was defined as the minimum threshold of oil rents that could help enhance financial development, thereby suggesting that the oil rents-financial development relation in Nigeria is U-shaped. One important policy implication of findings is that resource-rich countries, Nigeria inclusive, could deepen their financial sectors by properly channeling windfalls from resource rents towards the development of other sectors so as to strengthen the resilience of their economies in events of shocks to the booming resource sector