Energy Consumption and Economic Growth in Nigeria

Abstract

This study examines the relationship between energy consumption and economic growth in Nigeria for the period 1986-2023. The motivation for the study arises from Nigeria’s persistent energy supply challenges despite its abundant energy resources, and the need to understand the role energy plays in promoting sustainable economic growth. The study specifically investigates the impact of electricity consumption and total energy consumption on economic growth in Nigeria. The study utilizes annual time series data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin, The National Bureau of Statistics (NBS), and the World Bank Development Indicators (WDI). Real Gross Domestic Product (RGDP) is used as a proxy for economic growth, while electricity consumption and total energy consumption serve as explanatory variables, alongside selected control variables. The Augmented Dickey-Fuller (ADF) unit root test is employed to examine the stationarity properties of the variables. Given that the variables are integrated of mixed orders, I0 and I1, the study adopts the Autoregressive Distributed Lag (ARDL) Bounds Testing approach to cointegration to determine the existence of a long-run relationship among the variables. The long-run and short-run dynamics are estimated within the ARDL framework, and the Error Correction Model (ECM) is used to capture the speed of adjustment to long-run equilibrium. The empirical findings reveal the existence of a long-run relationship between energy consumption and economic growth in Nigeria. The results indicate that energy consumption particularly electricity consumption, has a positive and statistically significant impact on economic growth in both the long run and the short run. The study concludes that energy is a critical driver of economic growth in Nigeria and recommends increased investments in the power sector, diversification of energy sources, and improved energy sector governance to enhance sustainable economic growth.