The influence of corruption and the underground economy on the relationship between oil rent and economic growth in Negeria

This  study  examines whether  the  effect  of  oil  rent  on  economic  growth  in Nigeria  depends on the levels of corruption and the size of the underground economy (UE) over  the period 1990-2022. Relying on the Sachs-Warner resource‑curse theory, it employs the  autoregressive  distributed  lag  (ARDL)  approach,  as  well  as  the  fully  modified  ordinary  least  squares  (FMOLS),  canonical  cointegration  regression  (CCR),  and  dynamic OLS (DOLS) estimators. The estimation results show that oil rent contributes  positively to both short- and long-term growth, whereas reductions in corruption and  an expanding UE exert immediate and sustained negative effects on growth. Moreover,  the study  reveals  that  the impact  of  oil  rent  on growth varies  with  both  the  level  of  corruption and the size of the UE. Specifically, the marginal effect of oil rent on growth  is positive when corruption is low or the UE is small, but it weakens both short- and  long-term growth when corruption is high or the UE is large. In essence, the findings  imply that simultaneous increases in oil rent and corruption (or UE size) impair growth,  whereas rising oil rent alongside reduced corruption (or a smaller UE) yields greater  economic  benefits.  This  study  concludes  that  to  fully  harness  oil wealth  and  ensure  sustainable  long-term  growth,  economic  diversification  away  from  oil,  along  with  policies aimed at reducing corruption and curbing underground activity, is essen