ENERGY CONSUMPTION, TRADE OPENNESS AND ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM NIGERIA

Yusuf Opeyemi Akinwale

doi:10.32479/ijeep.11617

Abstract

This paper explores the link between energy consumption, trade openness and economic growth in Nigeria between 1971 and 2015 using Vector error correction model (VECM). The result of Johansen co-integration test shows that the three series are co-integrated, hence long-run relationship was established among them. Causality analysis in VECM shows that there is a long run causality from economic growth and trade openness to energy consumption as well as from economic growth and energy consumption to trade openness. The results of the short run causality indicate the Granger causality from economic growth to trade openness only. These outcomes suggest that trade openness could be boosted by improving production in all sectors of the economy and not the other way round. Also, decisive improvement in economic activities would lead to increase in energy use in the country as the size of the current energy consumption is too weak to cause economic expansion in Nigeria. Furthermore, due to the huge energy gap between demand and supply, Nigerian government should utilise the low carbon energy options towards a sustainable economic growth trajectory.Keywords: Economic growth; Vector error correction model; Energy consumption; Co-integration; Trade opennessJEL Classifications: C01, F14, F41, Q43DOI: https://doi.org/10.32479/ijeep.11617

Highlights

Globalisation has brought countries that are far apart to be close to one another which have made the exchange of goods and services easier and cheaper through international trade
A system generalized moment method (GMM) was used to assess the causality tests and the results indicated unidirectional causal relation from economic growth to energy use in the short run, a unidirectional causality from energy use to economic growth in the long run whereas bidirectional relation was observed in the strong run
Augmented Dickey Fuller (ADF) tests and Phillips Perron (PP) tests disclose that all the series are not stationary at levels as their probability values are greater than 5%; all the series became stationary at I(1) as their probability values are less than 5%

Summary

Introduction

Globalisation has brought countries that are far apart to be close to one another which have made the exchange of goods and services easier and cheaper through international trade. Arguments abound about the contribution that trade has made towards economic growth in different countries but this is yet concluded. Energy usage and consumption has been recognised to play a significant role towards the production of goods and services which improve trade and economic activities in a country. Energy is seen as an important resource that each and every sector of the economy requires to add values to goods and services it produces. International trade motivates economic activities which call for more energy usage (Kyophilavong et al, 2015). Most of the emerging economies are transiting from agricultural-based sector towards industrial sector which further requires additional energy demand, though newly imported technologies which could cause low-energy intensity is possible through trade openness (Ohlan, 2018). There have been studies between energy use and economic growth with differing outcomes in the past research studies (Dorgan, 2016; Ozturk and Acaravci, 2013; Lean and Smyth, 2010) but the link between energy use, trade

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Results

Conclusion