Fiscal Federalism and the Failure of Economic Diversification and Development in Nigeria: A Political Economy Analysis of 2019–2024 Onya Reason, PhD

:Nigeria’s fiscal federalism has long been central to resource allocation and governance, yet the country continues to experience insufficient economic diversification, persistent dependence on oil rents, and uneven development outcomes. This paper analyzes fiscal federalism in Nigeria between 2019 and 2024, examining how institutional structures, rentier state dynamics, and weak economic incentives have constrained diversification and development. Guided by Rentier State Theory and New Institutional Economics, the study employs a qualitative approach using high-quality secondary data, including institutional reports (NNPC, Central Bank of Nigeria, Nigerian Bureau of Statistics), scholarly publications, and media reports. Findings reveal that fiscal centralization, opaque resource transfers, and weak subnational fiscal accountability have limited investment in productive sectors. The study demonstrates that rentier incentives embedded in fiscal federal arrangements discourage diversification, promote prebendal resource allocation, and weaken the institutional mechanisms required for effective development. Policy recommendations include restructuring federal revenue allocation to incentivize productive investment, strengthening fiscal transparency, enhancing subnational capacity, and designing institutional incentives that align governance behavior with diversification objectives. The analysis underscores the critical need for institutional reform and political commitment to translate Nigeria’s fiscal federalism into sustainable economic development. Keywords: Fiscal federalism, Economic diversification, Nigeria, Rentier state theory, New Institutional Economics, Development, Institutional reform, Resource dependence