An Empirical Analysis of Energy Consumption, CO<sub>2</sub> Emissions and Economic Growth: The Nigerian Case: 1980-2009

Abstract

This research thesis investigates the effects of the short run and long run causal link (Granger causality relationship) between energy consumption, economic growth and carbon emissions in Nigeria (using Nigerian data over the period 1980 – 2009) including labor, investment in gross fixed capital formation, trade openness, total expenditure on education and labor force in the model. The Augmented Dickey Fuller (ADF) and Philip Perron (PP) Test were employed to examine the stationary state of the data while the Johansen co-integration test was employed to determine if there exist a long run relationship among the variables before estimating the model. The stationary test results indicate that none of the variables are stationary at levels in both tests while the cointegration results indicate that there are four co-integrating equations associated with our variables. Furthermore, applying the techniques of VECM version of Granger causality to find whether there exist a bi-directional or uni-directional causality between energy consumption, economic growth and carbon emissions in the short and long run. The statistical findings indicate that a neutral hypothesis holds in the short run (economic growth and energy consumption and carbon emissions are not related) and a bi-causal relationship holds in the long run between economic growth and energy consumption. This result does not suggest the existence of an EKC hypothesis in the long run, however, the standard polynomial functions (linear, quadratic and cubic) were estimated to confirm the existence of the EKC (‘U’) curve or ‘N’ shape curve and to find the main driving forces affecting carbon emissions patterns and the relationship between economic growth and carbon emissions. After conducting further diagnostic tests (ARCH test, normality test of residual term, white heteroscedasticity and model specification test- ramsey reset test) to determine the correctness of the specification of our model or robustness of our model, the emerging results prove that none of the variables influences carbon emissions in the long run including GDP and thus no EKC (‘U’) curve or ‘N’ shape curve was obtained. Therefore, the conclusion from our study is that although in the short run no causality is found between economic growth, energy consumption and carbon emissions, there is a strongly interdependent relationship between economic growth and energy consumption in the long run. Hence, proper environmental and energy policy should be adopted at appropriate time to protect natural capital (environment) which may control the vulnerability of climate change.