A VAR Analysis of the Relationship between Energy Consumption and Economic Growth in Nigeria

Abstract

The indispensible factor for sustainable economic development in every economy is energy. It is an engine room for rapid socio-economic growth and development. In Nigeria, the problem of insufficient electricity supply (power) is as the result of lack of diversification of energy sources. Electricity generation cannot cope with the ever increasing demand for the product. As a result of rapid population growth, access to modern energy remains relatively low and inequitable. However, there is a functional relationship between the quantity of electricity generation (megawatt) and sustainable development in the economy. This paper investigated the direction of this functional relationship between energy and sustainable economic development using the Granger causality test. Also a multiple regression analysis was adopted to explore the impact of energy consumption on economic growth. The result showed that energy consumption had a bidirectional relationship with GDP growth, and directly contributed significantly to economic development in Nigeria. To this end, therefore, there is need for policy makers to boost investment in the energy sector in order to increase its supply, and meeting the demand for energy with a view to meeting the expectations of the millennium development goals.

Keywords: sustainable development, energy consumption, energy potentials and economic growth