Oil Price, Energy Consumption and Macroeconomic Performance: Further Evidence from Nigeria (1970-2009)

Abstract

The global energy crisis and the renewed interest in international policies needed to find a suitable energy supply and consumption pattern has raised the tempo of research interest in the linkages between the energy sector and economic performance across countries. The empirical analyses and the adopted models for investigating these linkages highly depend on the development level and economic structure of the countries considered. The focus of this paper is to investigate the dynamic relationship between oil price, energy consumption and macroeconomic performance in Nigeria. The main motivation for the paper came from a study carried out on another country. Bekhet and Yusop (2009) investigated similar issues with data from Malaysia and found that there is an evidence for a stable long-run relationship between the oil price, employment, economic growth. Bekhet and Yusop (2009) also showed that changes in world oil prices also affect the total energy consumption in Malaysia but reverse does not hold in Malaysia context. In view of the fact that Nigeria is also a net export of oil and a developing country facing challenges with energy policy and economic growth, it is imperative to examine whether the result obtained in Malaysia could be replicated with data from Nigeria. This analysis is useful in assessing the dependence of energy consumption for Nigerian economy. This is important because when a country’s economy is heavily dependent on energy consumption, environmental policies for energy conservation could adversely affect economic growth. Therefore, the understanding of the direction of causality between energy consumption and economic growth could have important policy implications. Indeed, the relationship between use of energy and economic growth has been a subject of greater inquiry as energy is considered to be one of the important driving forces of economic growth in all economies (Pokharel, 2006). Besides that, this paper is also trying to look at the effects of world oil price to energy consumption as well as to the Nigeria economic performances namely the economic growth.