Effects of Electricity Supply on Economic Growth in Nigeria (1980-2012): Vector Autoregressive Approach

Abstract

This research work is on the effect of electricity supply on economic growth in Nigeria between 1980 and 2012, a period of thirty two (32) years. Nigeria is seen as one of the greatest developing nations in Africa with highly endowed natural resources including potential electricity resources. However, increasing access to electricity in Nigeria has proved to be not only a continuous challenge but also a pressing issue with the international community. The study therefore analysed the effect of electricity supply on economic growth in Nigeria utilising secondary data with real gross domestic product (RGDP) as the dependent variable; and electricity supply, electricity generation, capital and labour as independent variables. Analytical techniques of Vector autoregressive (VAR) method, lag length selection criteria, variance decomposition and impulse response function were employed. The main or target VAR equation was transformed to system of equations and estimated through the Newey- Heteroskedasticity and autocorrelation (HAC) consistent covariance OLS estimator to enable objective determination of the effect of electricity supply on economic growth in Nigeria. Results indicate that the influence of electricity supply on economic growth is statistically significant; electricity generation has a positive relationship and also significant impact on the economy, while electricity supply negatively impacts economic growth. Despite the huge money which government claimed she is spending on the power sector, this study found that it has not been yielding desired positive effect on economic growth. Efforts should be directed at increasing electricity generation, ensuring effective monitoring of the activities of the newly established/private sector driven electricity generation companies (GENCOS) and distribution companies (DISCOS), curbing mismanagement to achieve efficient utilisation of energy resources and the training and retraining of staff in the power sector with a view to enhancing electricity supply for sustainable economic growth and development of Nigeria.

Keywords: electricity supply, vector autoregressive (VAR) method, variance decomposition, impulse response, lag length selection criteria.