Long and Short run Impact of Energy Consumptionon household Consumption Expenditure in Nigeria

Abstract

The study aimed at assessing the impact of energy consumption on household consumption expenditure in Nigeria. Time series data from 1981 to 2020 were collected from the Food and Agriculture Organization (FAO) for analysis. Descriptive statistics, the Augmented Dickey Fuller (ADF) test for unit root, Johansen Co-integration test, and Vector Error Correction Model (VECM) were employed in the analysis. The results of the ADF test indicated that all variables were integrated of order one and became stationary after first differencing. The Johansen Co-integration test showed that the computed Trace statistics and Maximum Eigen value exceeded the critical values at 0.05 level, indicating the presence of co-integration among the variables. This suggests a long-run relationship between energy consumption and household consumption expenditure. The VECM analysis revealed statistically significant coefficients for fuel wood, charcoal, and electricity consumption at 1%, 1%, and 5% levels respectively. This indicates the existence of a long-run effect of energy consumption on household consumption expenditure. In the short run, the coefficients for fuel wood and electricity consumption were also statistically significant at 1% level. The study recommended the promotion of welfare policies, implementing initiatives that can effectively increase income levels and subsidizing the prices of modern energy sources like electricity tariff as avenue to encourage savings among farmers as solutions.