Institutional Quality and Electricity Supply Growth in a Developing Economy: The Case of Nigeria

Abstract

Efficient and reliable power sector is a veritable channel for economic growth. Even with abundant electricity production sources, Nigeria’s electricity production and distribution systems are technically weak. However, efforts such as the recent commercialization and privatization of the power sector have been made to solve these problems without significant success. Electricity supply processes may be affected by institutional quality. There are indications that institutional quality in Nigeria is weak and inefficient and this may affect supply of electricity in the country. Hence, this study examines the impact of institutional quality on electricity supply in Nigeria. Based on the Neoclassical Solow-Swan growth model, the study adopted the standard econometric error correction mechanism (ECM) and used time series data from 1981 to 2015. The ADF tests showed that all the variables were stationary and statistically significant and integrated of order one I(1). The Johansen cointegration results indicate existence of long run equilibrium relationships between the variables. ECM result was statistically significant with the correct sign. The speed of adjustment between the short run and long run behaviour of electricity supply variables was 59.73 percent. Institutional quality, with coefficient of -1.23 indicates that institutional quality in the country does not contribute positively to electricity supply growth. Following the above results, the study concludes that institutional quality impacts negatively on electricity supply and therefore inhibit electricity supply growth in Nigeria. The study recommends that to enhance institutional quality and therefore boost electricity supply in Nigeria, policies should be directed at enhancing institutional quality such as policies to encourage contract enforcements, enhance property rights, reduce corruption, enthrone good governance, and improve the legal and security systems.

Keywords: Institutional quality, electricity supply, energy, growth, power sector