Addressing The Energy Consumption-economic Growth Nexus: The Nigerian Case

Abstract

Energy is critical to the survival and expansion of any economy. In Nigeria,
energy consumption has been skewed towards household use, and below
thresholds for sector-driven growth. The article updates, in time and
methodology, those studies highlighting the significance of energy use for
economic growth, using the Bound test and the Auto Regression Distributed
Lag (ARDL) to establish the long- and short-run relationships between
disaggregated energy consumption and economic growth in Nigeria from
1990 to 2016. The variables considered are real GDP, energy consumption
decomposed into electricity and petroleum consumption, labour and capital.
The findings show that, in the short and long run, petroleum consumption
and labour have a significant positive relationship with GDP. Furthermore,
the causality results show that feedback causation between economic growth
and energy consumption as well as labour exists, while one-way causation
runs from labour to economic growth. The study recommends diversification
of the power-generation portfolio in the country, as this will improve energy
consumption. Also, full deregulating policies in the energy sector would
encourage industrialization and move energy demand towards increasingly
productive uses. Finally, a strong institutional framework is needed to ensure
energy policies achieve their objectives and targets.