Nexus among electricity consumption, foreign direct investment and aggregate economic activity towards Nigeria's economic performance: evidence from a trivariate causality model.

Abstract

It is evident that there is nexus among electricity consumption, foreign direct investment and aggregate economic activity. Unfortunately, the causal relationship among the three variables in Nigeria based on modern econometric methods, recent time-series data and ways that sufficiently cater for inflation and population growth has not been adequately investigated. This study, among other things, used a trivariate vector error correction model, autoregressive distributed lag bounds test for cointegration and Granger causality test to analyse the causal relationship among electricity consumption, foreign direct investment and aggregate economic activity based on time-series data from 1970 to 2018. The study found the presence of neutral causality between electricity consumption and aggregate economic activity in the short run as well as unidirectional causality from aggregate economic activity to electricity consumption in the long run. The study also found the presence of unidirectional causality from foreign direct investment to electricity consumption as well as neutral causality between foreign direct investment and aggregate economic activity in both the short run and the long run. It is therefore recommended that steps should be taken to adequately increase foreign direct investment and aggregate economic activity in ways that will guarantee an optimal increase in electricity consumption in Nigeria.