# **1 Introduction**

After the discovery of oil in Nigeria in 1956, the country started oil production in 1958, and soon after became the main oil exporting nation on the African continent. In spite of the oil boom in the 1970s, the expected prosperity was failing to appear. GDP per capita (constant) was stagnating. It did not improve significantly and sustainably until the mid 2000s, and only caught up with the Sub-Saharan African average in 2010. Other indicators of economic development have been following a similar pattern—the share of people living below $1 per day increased from 36% in 1970 to a staggering 70% in 2000, and at the same time the share of extremely wealthy individuals grew, such that the income distribution widened considerably<sup>1</sup> .

An additional characteristic of Nigeria’s development is the volatility of its growth rates. While its average GDP per capita growth rate was just over 1% between 1980 and 2014, the standard deviation was close to 7.5, which is higher than in other Sub-Saharan African countries, and in other oil-producing nations (see Table A.1 in the Appendix).

Ever since the important contribution by Sachs and Warner (1995), in which a negative influence of natural resource wealth on economic development was shown empirically, Nigeria’s lack of development was attributed to its oil-abundance, and accompanying _Dutch disease_ effects. van der Ploeg (2011), however, remarks that _”[i]t is hard to maintain that the standard Dutch disease story of worsening competitiveness of the non-oil-export sector fully explains [Nigeria’s] miserable economic performance”_ . Empirical research by Sala-i-Martin and Subramanian (2003, 2013) backs up that presumption: natural resources have a deteriorating impact on the quality of institutions, and through that channel natural resources harm economic development, even in the absence of Dutch-disease This data-based analysis aims at re-investigating the causes for Nigeria’s growth performance. Using panel data of close to 150 countries during 1970 and 2014, we assess the determinants of GDP per capita growth, highlighting in particular the role of natural resources and institutional quality. Long-term, cross-sectional analyses are performed in addition, in order to carefully take into account that institutional quality measures are prone to endogeneity and measurement errors by using Two-Stage-Least-Squares estimators. The ultimate aim of the analysis is to learn about the drivers of growth in Nigeria, and to assess the country’s future growth potential. Therefore, various interaction terms in the panel setting allow a deviating impact of several factors in Nigeria as compared to the rest of the sample. These estimations are used to project GDP per capita growth rates for Nigeria under different scenarios.

The remainder of this paper is organized as follows. Section 2 summarizes existing literature on the resource-growth nexus, and the relevance of the institutional environment of countries in this context. Before the estimation results are presented in Section 5, Sections 3 and 4 outline the

> 1Data on poverty rates are taken from van der Ploeg (2011), and developments in income inequality from Salai-Martin and Subramanian (2003).

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