Long-run Relationship between Power Consumption and Manufacturing Sector Output in Nigeria

Abstract

Power remains the engine of growth of every economy while the manufacturing sector remains the key driver of a transformed modern economy. Despite several power sector reforms, Nigeria’s manufacturing sector continued to underperform. This study focused on examining the long-run relationship between power consumption and manufacturing sector output in Nigeria. We estimated an ARDL model based on the bounds-testing approach to cointegration. Our results indicate that manufacturing sector output and electricity consumption are cointegrated and that short-run deviations from equilibrium are corrected up to 83 per cent annually. The result showed that power consumption is positively related to manufacturing sector output. This implies that improved power sector will stimulate manufacturing sector growth. Our result also showed that capital formation, labour force and private sector credit are positively related to the manufacturing sector while the monetary policy rate is negatively related to the manufacturing sector. Given our findings, we recommend that the government should implement a sustainable power sector reform that prioritizes the manufacturing sector. This will stimulate growth, reduce the cost of energy and indirectly reduce price of manufactured products. We equally recommend creating a conducive environment for investment in the manufacturing sector through favourable monetary policy rates to allow manufacturers access to credit.