The study had set forth to explore the intertwining relationship that exist between oil revenue shock, non-oil export and industrial output in Nigeria. In achieving this objective the study utilized data spanning the period 1970-2010. This period captured the major era of regime shift (changes in governance) and policy administration in Nigeria. Vector Autoregressive (VAR) model and cointegration technique were used to examine the long run relationship, while the Vector Error Correction Model (VECM) was used to analyze the short-run behavior of the variables. The Johansen cointegration analysis suggests that a long run behavior exist between oil revenue shock, non-oil export, policy/regime shift and industrial output in Nigeria. The short-run result showed that the speed at which industrial output will converge towards long-run equilibrium after experiencing shock from oil revenue is very slow. It therefore would take a very slow process for industrial output to recover from shock arising from variation in oil revenue. The long run result shows that oil revenue shock and policy/regime shift had negative impact on industrial output and non-oil export. The impulse response function and variance decomposition analysis suggest that the major drivers of industrial development in Nigeria are non-oil export, regime shift and oil revenue. Thus innovations from these variables impact severely on industrial growth in Nigeria. The study therefore suggest among other things that the panacea to industrial growth in Nigeria rest on diversifying the economy away from crude oil export and ensuring a stable government in Nigeria that will endure long enough to sustain industrial and other economic policies.
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