Energy Consuption and Economic Growth in Nigeria

Abstract

The relationship between energy consumption and economic growth has attracted much interest in economic literature. The views on the direction of this relationship are divergent. Empirical evidence varies, depending on the sources and pattern of energy consumption of the economy examined. This paper investigated the causality between GDP and each of the basic subcomponents of energy consumption in Nigeria with a view to finding out if different sources of energy have varying impact on economic growth. The study found non-stationary and cointegrated series for both economic and energy variables in Nigeria; for the 1970 - 2005 periods. Using a vector error correction based Granger causality test, we found a unidirectional causality from electricity consumption to GDP both in the short-run and long-run. Unidirectional causality form Gas consumption to GDP in the short-run and bidirectional causality between the variable in the long-run. Although no causality was found in either direction between oil consumption and GDP in the short-run, a unidirectional causality from oil consumption to GDP is found in the long-run. Our findings imply that a policy to reduce energy consumption aimed at reducing emission will have negative impact on the GDP in Nigeria.

Keywords: Energy, consumption, growth, causality