Energy Consumption and Economic Growth in Nigeria: A Test of Alternative Specifications

Abstract

The debate on the nexus between energy consumption and economic growth continues unabated with divergent views on the direction of the relationship. This is partly due to the sources and patterns of energy consumption across different countries, differential characteristics of the economies, and differences in the methodologies employed. Again, the mixed and inconclusive results from prior cointegration tests might have arisen from the assumption of symmetry when, in actuality, the response of economic growth to energy consumption may be asymmetric. Furthermore, for studies that employed the asymmetric cointegration analysis, the data generating process might account for the conflicting evidence, especially for annual series. Therefore, this paper re-evaluates the relationship between energy consumption and economic growth in Nigeria over the period 1999Q1–2016Q4 using alternative model specifications. Specifically, the study used a nonlinear (or asymmetric) ARDL model and an ARDL-ECM specification which presumes a linear relationship rather than a nonlinear one. Overall, we find that the role of energy consumption as a driver of growth remained negligible throughout, suggesting that a lot still needs to be done to ensure that the expected role of energy begins to manifest in the Nigerian economy. The Granger causality tests revealed a unidirectional causality running from energy consumption to economic growth, indicating that Nigeria can attain high levels of sustainable growth with improved and stable energy supply. Thus, the study concludes that these findings constitute a wake-up call on governments and policymakers in Nigeria and other Sub-Saharan African economies that share structural similarities with it that there is an urgent need to evolve and implement policies that will address the energy challenges of these economies.Keywords: Energy Consumption; Economic Growth; Nonlinear ARDL; Error Correction Model; Granger CausalityJEL Classifications: Q41, O47, C51, C22, C32DOI: https://doi.org/10.32479/ijeep.8902