The Energy Consumption-Economic Growth Nexus in Nigeria: What Evidence Exists?

Abstract

The study investigated the energy consumption-economic growth nexus in Nigeria. Specifically, the study aimed to establish a comprehensive understanding of the nexus and causality between the variables in Nigeria. The study’s significance is highlighted in the context of various energy policies implemented in Nigeria, including the elimination of fuel subsidies. In order to accomplish the goals of this research, data spanning the period 1980 to 2022 were utilised in the study. Additionally, various econometric techniques, including the autoregressive distributed lag (ARDL) technique and the causality test, were adopted in order to estimate the relationship and causality between the variables. This approach has several advantages especially given variables that were integrated of order, I(0), I(1) or the combination of both. The method used in this study is also extremely resilient in establishing a strong and uninterrupted correlation between variables. The results of the research uncovered various important discoveries, one of which highlights the presence of a lasting connection between energy consumption and economic growth in Nigeria. Specifically, the study showed the presence of co-integration between energy consumption and economic growth. The study also demonstrated that in the event of an economic shock or destabilisation, the economy will take a relatively longer time period to re-establish equilibrium. Additionally, the outcomes of the study implied that energy consumption had a short- and long-term beneficial influence on growth. The study therefore suggested the implementation of an effective energy strategy that promotes sustainable consumption, so facilitating a prompt return to equilibrium in the event of an economic shock. The study showed novelty in that, unlike previous studies in Nigeria which has placed more emphasis on the impact or the effect of energy consumption on economic growth, it examined both the short- and long-run nexus, as well as the causality among the variables. This importance of the study cannot be overemphasised given the structural imbalances in Nigerian energy sector.