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CHAPTER ONEINTRODUCTION1.1 Background to the StudyCrude oil is one of the abundant natural resources nature has blessed Nigeria with. Since the discovery of oil in commercial quantity in Nigeria at Oloibiri in the present day Bayelsa State, the country’s oil sub-sector has grown phenomenally and the importance of oil in the development of the economy cannot be overemphasized. Baghebo and Atima (2003) confirmed the above by stating that oil industry has gradually, albeit at a sharp increase become the most valuable and vibrant industry in the Nigeria’s economy.The huge revenue from oil of course presented net wealth and thus provided opportunity for increased expenditure and investment. Oil provided approximately 90 percent of foreign exchange earnings and about 80 percent of federal revenue and contributed to the growth of Gross Domestic Product (Gunu and Kilishi 2010). Iledare (2007) in his contribution, forwarded that petroleum, especially oil, has been the main driver of the Nigeria’s economy since the end of civil war in 1970, contributing nearly 80 percent of government’s revenues and 90 – 95 percent of its foreign exchange earnings; On the average, an analysis he draws from 1970 – 2007. The above stated benefit notwithstanding, the discovery of oil also came with its attendant problems. This is because, oil industry has replaced the agricultural industry as Nigeria’s highest producer of export commodity and highest export earner.After acquiring a 51 percent stake of the petroleum, Nigeria joined the Organization of Petroleum Exporting Countries (OPEC) in 1971 paving the way for enhanced significance on the global stage of oil producing and exporting nations (ORTII Report, 2013). This is an intergovernmental Organization of thirteen (13) developing countries, founded in 1960 by five (5) nations. The Organization has as its stated mission “to coordinate and unify the petroleum policies of its member countries to ensure the stabilization of oil market in order to secure an efficient, economic and regular supply of petroleum to consumers,…” (Aluko 2005). One of the mechanisms it uses to achieve these objectives is the crude oil production quota it places on all its members.Since the country joined the Organization in 1971, the impact of crude oil production quota on Nigeria’s economy has been double edged meaning, that it has benefited the country in some ways and has in many other ways, turned out to be a problem. Specifically, changes in the production quota internationally affect the nation’s domestic economy and force government to adjust its expenditure in line with such changes. Basically, the crux of the problem lies in the fact that Nigeria has extremely relied on this commodity over the years, making its economy a mono-product economy and this has triggered severe structural difficulties for the economy.It is therefore within this context that this research intends to examine the impact of crude oil production quota systems on Nigeria’s domestic economy.

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