ABSTRACT
This
study empirically examined the relationship between energy consumption and
economic growth in Nigeria. Time series data was generated covering the period
1970 through 2009. The study used electricity consumption and real gross
domestic product to test for this relationship. By applying unit roots, the
co-integration techniques, and static regression analysis, the results derived
infer that there exists a positive relationship between current period
electricity consumption and economic growth and so, the null hypothesis
predicted is not supported by this study. The implication of the study is that
increased electricity consumption is a strong determinant of economic growth
having an implicit effect in lagged periods and both an implicit and explicit
effect on the present period in Nigeria. Thus, it is pertinent that this sector
should be given more relevance by fully implementing the process of electricity
liberalization and privatization, exploiting the opportunities laden in the
sector to increase economic growth.
It further recommends that emphasis on non-market policies like public
enlightenment, enforcing energy efficiency standards will encourage electricity
conservation and efficiency especially in the residential sector which is the
largest consumer of electricity in Nigeria. Lastly, providing steady
electricity supply is paramount for the country’s drive towards
industrialization.
TABLE OF CONTENTS
Page
Title page i
Certification ii
Dedication iii
Acknowledgements
iv
Table of
Contents v
List of Tables/
figures viii
Abstract ix
CHAPTER
ONE- INTRODUCTION
1.1
Background to the Study 1
1.2
Statement of the Problem 3
1.3
Objectives of the Study 4
1.4
Research Questions 4
1.5
Hypothesis for the Study 4
1.6
Significance of the Study 5
1.7
Brief Methodology 6
1.8
Plan of the Study 6
CHAPTER
TWO- LITERATURE REVIEW
2.1 Introduction 7
2.2 Empirical review 7
2.3 The Electricity Power Sector of Nigeria 10
2.4 Electricity Consumption in Nigeria 15
CHAPTER
THREE- THEORETICAL FRAME WORK AND METHODOLOGY
3.1 Introduction 21
3.2 Theoretical Framework 21
3.3 Methodology 23
3.4 Sources of Data 23
3.5 Re- statement of Hypothesis 24
3.6 Specification of Model 25
3.7 Estimation Technique 25
3.8 Statistical Test 29
CHAPTER
FOUR- EMPIRICAL RESULT AND DISCUSSION
4.1 Introduction 32
4.2 Descriptive Statistics 32
4.3 Unit Root Test 36
4.4 Co integration Test 37
4.5 Long run Static Regression Analysis 38
4.6 R- Square and Adjusted R- Square 39
4.7 Model Goodness of Fit 39
4.8 Correction Model 40
4.9 Discussion of Findings 42
CHAPTER
FIVE- SUMMARY, RECOMMENDATIONS AND CONCLUSION
SUGESTION
FOR FURTHER STUDY
5.1 Introduction 43
5.2 Summary 43
5.3 Recommendations 44
5.4 Conclusion 45
5.5 Suggestion for Further Studies 45
References
46
Appendix
50
List
of Tables/ Figures
1.
Old Power Plants and Generation
Capacities
14
2.
Seven New Federal Government Power
Projects in Niger Delta 15
3.
Electricity Consumption (Mega Watts per
hour) 16
4.
Comparative analysis of consumption of
electricity worldwide 19
5.
Summary statistics of variables 34
6.1 Unit Root at Levels 37
6.2
Unit Root at First Difference 27
7. Johansen Cointegration Test 38
8. Static Regression Analysis 40
9.
Error Correction of the Growth Model 41
List
of figure
1 Trend in GDP and Electric Power Consumption
in Nigeria 35
CHAPTER
ONE
INTRODUCTION
1.1 Background to the Study
The growth, prosperity and national
security of any country are critically dependent upon the adequacy of its
electricity supply industry. Indeed, the link between electricity supply and
economic growth is such that electric energy generation is not only a major and
increasing source of energy; it is also for us a growth industry as well as
‘entirely new industry ’ (Okongwu,1986). Energy is a required input for
production and consumption activities, making it indispensable source of
economic growth. Nigeria is no exception. It is instructive to note that, electric power is vital for economic growth and quality of
life not only because it fosters the productivity of capital, labour and other
factors of production, but also that increased consumption of energy,
particularly commercial energy like electricity signifies high economic status
of a country (Adebola, 2011), These facts have
attracted researchers to investigate the role of electricity in different countries.
However,
Classical economists did not recognize electric energy as a factor of production and
neither did
the Neoclassical. Today, economists like
Alam (2006)
as cited in Adebola (2011) finds out in his work on ‘Economic Growth with Energy’ that not only
does energy serve as a factor of production; it also acts as a booster to
growth of a nation. Thus,
there
is a departure from classical and neoclassical economics’ factors of production which
include only capital, labour and
technology to now include
energy as a factor of
production. It may be noted that electricity has effects not only on
factors of production but also on the impact it has
on capital accumulation.
In literature, the relationships between electricity consumption
and economic growth are well documented. However, debate regarding the causal relationship
between electricity consumption and economic growth has attracted increasing
attention in recent years. Emeka (2010) posits that the thrust of this debate
has been whether electricity consumption causes economic growth or whether it
is the economic growth that leads to electricity consumption. These causality
issues, therefore, suggest the need to carry out further investigations.
Indeed, most studies linking electricity consumption to economic
growth were conducted utilizing causality test for multi-country but fewer
studies that establish the
relationship between the two variables exist in literatures that employed cointegration
technique for separate country as Nigeria. This study, therefore, will fill the
gap.
Undeniably, Nigeria is presently faced with the
challenge of providing sustainable, adequate, reliable and efficient
electricity supply to residential, commercial and industrial consumers. This
situation has adversely affected the social and economic life of the citizenry
(Jonathan, 2010). The trend however, has often been
constrained by perennial dismal energy supply plaguing this fledgling
economy. Like most economies in the West
African sub-region, the country’s energy production rate continues to lag
behind the rate of growth in demand from its industrial and services sectors
(Adoghe, 2010; Igbinovia and Odiase, 2009; Iwayemi, 2008; Okongwu, 1986 to
mention few). Although electric energy generation and supply difficulties in
the country over the years are well documented, worsening supply conditions
continue to heighten growing concerns in recent years about the ultimate impact
of the condition on the nation’s long-term economic growth prospects and
quality of life (Iwayemi,2008).
The
foregoing provides the basis for examining the relationship between electricity
consumption and economic growth in Nigeria.
1.2
Statement of the Problem
Electricity plays a very important role in the socio-economic and
technological development of every nation. The electricity demand in Nigeria
far outstrips the supply and the supply is epileptic in nature. The country is
faced with acute electricity problems, which is hindering its development
notwithstanding the availability of vast natural resources in the country. It
is widely accepted that there is a strong correlation between socio-economic
development and the availability of electricity. Given the situation above, the
study seeks to examine the relationship between electricity consumption and
economic growth in Nigeria.
1.3
Objectives of the Study
Generally,
this study seeks to empirically examine the relationship between electricity
consumption and economic growth in Nigeria.
However,
it will:
1.
Assess the profile of electricity
consumption in Nigeria for the periods 1970-2009.
2.
Examine the relationship between
electricity consumption and economic growth in Nigeria.
1.4 Research Questions
The following questions will guide this study
1. What is the trend of electricity
consumption in Nigeria from 1970 to 2009?
2.
Does electricity consumption contribute to economic growth in Nigeria?
1.5 Hypothesis for the Study
This
hypothesis was tested for the study
H0:
There is no significant relationship
between electricity consumption and economic growth in Nigeria.
H1: There is significant relationship between
electricity consumption and economic growth in Nigeria.
1.6 Significance of the Study
The study is relevant in the true
sense that it will help to improve the erratic supply of electricity to
households, firms and government in the country. This study identifies
the central role of electricity in the process of economic transformation.
Electrical energy supply is not only a major and increasing source of energy;
it is also for us a growth industry as well as ‘entirely new industry’ Therefore,
this study will facilitate the effort of policy makers and government to make
PHCN perform efficiently. The importance of vibrant powers sector is necessary
because of the clamour in the need to attain sustainable development. Also this
empirical study will be important for policy recommendation from the point of
view of electricity consumption and economic growth for Nigeria and also for
global panel. The study will help provide reliable service; improve efficiency
and stimulate growth for small business that rely on electricity which can have
huge impact on the lives of rural and urban dwellers by creating jobs.
Households, firms and government will have to benefit from
the study through improved quality, efficiency and reliability in electric
supply. It will add literature to the existing field of energy economics.
1.7 Brief
Methodology
The
main focus of this study is to empirically examine the relationship between
electricity consumption and economic growth in Nigeria. It adopts the
descriptive and inferential methods to analyse the data. To complement the
descriptive and analytical approaches mentioned above, the Ordinary Least
Square was used. In this case one model was formulated and adequate econometric
techniques adopted. The data set for this study is mainly secondary data. The
secondary data comprises annual time series covering the periods1970-2009. All
the data were sourced from the World
Population Indicator (2012) and Central Bank of Nigeria Annual Statistical
Bulletin (2009). In this study, the real GDP is expressed in terms of million
Naira (the Nigerian currency) while electricity consumption is expressed in
terms of Kilowatts per hour.
1.1 Plan of
the Study
The
study has been divided into five chapters. The first chapter provides the
background of the subject matter justifying the need for the study. Chapter two
presents related literature concerning the relationship between electricity
consumption and economic growth in Nigeria. The theoretical framework and
research methodology have been stated in chapter three while empirical result
and discussion were made in chapter four. Concluding comments in chapter five
reflect on the summary, conclusion and recommendations based on the findings of
the study.
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