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Title of Paper: Energy Consumption and Economic Growth Nexus; Empirical Evidence from Nigeria Being a Paper Presented at the 2013 Annual Conference of the Nigerian Energy Economic Society at Lagos held from 22-23 April, 2013 By ABALABA BAMIDELE.P Department of Economics
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Title of Paper: Energy Consumption and Economic Growth Nexus; Empirical Evidence from Nigeria Being a Paper Presented at the 2013 Annual Conference of the Nigerian Energy Economic Society at Lagos held from 22-23 April, 2013 By ABALABA BAMIDELE.P Department of Economics College of Management and Social Sciences Osun State University, Okuku Campus Okuku, Osun State E-Mail Address: abalabapero@yahoo.com And DADA MATTHEW ABIODUN Department of Economics ObafemiAwolowo University, Ile-Ife Nigeria E-Mail Address: mattabey@yahoo.com
INTRODUCTION – SECTION ONE TREND IN ENERGY CONSUMPTION AND REAL OUTPUT
INTRODUCTION – CONTD TREND IN REAL OUTPUT, ENERGY CONSUMPTION, CONSUMER PRICES AND FINANCIAL DEVELOPMENT
Introduction - Contd. • From the figures previously displayed, energy consumption has a positive trend. The slope of energy consumption curve as shown is positive. • It is no gain say any longer any where in the world over that the demand for energy is growing faster than its supply; this trend has necessitated renewed efforts by the government both in developing and developed countries to boost energy supplies in order to meet the demand.
INTRODUCTION – Contd. • Having observed this trend, this study attempted to examine energy consumption and economic growth nexus using Nigeria data. • Time series data covering the period (1971 – 2010) were sought on CBN Statistical Bulletin, 2010 Edition, World Development Indicators (WDI) and NBS. The statistical properties of the time series data were properly investigated using appropriate econometric techniques. • The rest of this paper is organized as follows: Section 2 deals with literature review regarding the relationship between energy consumption andeconomic growth. Section 3 presents the data and the econometric methodology, Section 4 presents results and discussion while section 5 concludes.
SECTION TWO: LITERATURE REVIEW • Most studies have linked economic growth with energy consumption across the globe. Causal evidence have been found in the works of Soytas and Sari (2003), Soytas, Sari and Ozdemir (2001), Chontanawat, Hunt and Pierse (2006), Ozun and Cifter (2007), Contantini and Martini (2009), Ghosh (2002), Jumbe (2004) and Rufael (2006).
LITERATURE REVIEWCONTD. On cointegration relationship, Zou and Chau (2005) established a cointegration relationship between energy consumption and economic growth. While the study provides evidence in support of long-run bidirectional causality, It found no evidence in support of short-run causality between energy consumption and economic growth.
LITERATURE CONTD. • Moreover, Erbaykal (2008) established that energy consumption has positive and significant influence on growth. The study infers that both electricity and oil consumption have short-run effect on growth. • However, most of these studies used disaggregated analysis. Some also employed panel data while some adopted country-specific data.
SECTION THREE: DATA AND METHODOLOGY • The data for this study include real GDP, energy consumption, consumer prices, money supply and credit available to the private sector. • The study formulated econometric models and adopted adequate econometric techniques. These techniques include; unit root test, cointegrationtest, error correction mechanism (ECM) and Granger causality test. • The estimated OLS-based regression and the Error Correction Models are shown in equations 1-4 below:
DATA AND METHODOLOGY CONTD. • InRGDPt = 𝑓(InTECONSt , InCPIt ,InM2DIVGDPt , CPSDIVGDPt)……………................................(1) We obtain the exact linear form of the model as: • InRGDPt = β0 +β1InTECONSt + β2InCPIt + β3InM2DIVGDt + β4InCPSDIVGDt …………….(2) The stochastic form of the linear model becomes:
DATA AND METHODOLOGY CONTD • InRGDPt = β0 +β1InTECONSt + β2InCPIt + β3InM2DIVGDt + β4InCPSDIVGDt + Ut ……………………………………………..(3) • ΔInRGDPt = β0 +β1ΔInTECONSt +β2ΔInCPIt+ β3ΔInM2DIVGDt + β4ΔInCPSDIVGDt - β5ECMt-1 + εt ……(4)
SECTION FOUR: RESULTS AND DISCUSSION. • The results of ADF and Phillips-Perron Unit Root Test indicate that all variables are integrated of order one i.e. they are I(1) process. • The results of the cointegration analysis from Engle-Granger approach provides evidence in support of long-run relationship
SECTION FOUR – RESULTS AND DISCUSSION CONTD • However, the result of Johansen method of cointegration test, does not fully in support of long-run relationship as only the trace test rejects the hypothesis no cointegration while the eigenvalue test could not reject the hypothesis of no cointegration between energy consumption and economic growth.
RESULTS AND DISCUSSION CONTD. • The ECM result does not provide evidence in support of long-run equilibrium relationship between energy consumption and growth. The ECM coefficient even though significant at 5% level (t=3.45, p<0.05) but is positively signed as against the a priori expectation. • Also,the study revealed that energy consumption among other variables positively and significantly influenced output growth in the short-run (t=2.66, p<0.05).
RESULT AND DISCUSSION CONTD • The ECM model explained 32% of the variation in real GDP as • (R2 = 0.32). The Durbin Watson statistic of 1.70 showed that there was no problem of serial correlation.
RESULTS AND DISCUSSION CONTD. • The result of the standard Granger causality test provided no causal evidence one way or two way between energy consumption and economic growth in Nigeria since the hypothesis of no causality was upheld in both directions.
SECTION FIVE: CONCLUSION • Based on the findings of this study, there is need to reposition the energy sector in such a way that it produces the desirable growth effect for the total emancipation of the moribund economy. • The study concluded that energy consumption only has short-run positive impact on the economy but has not enhanced long-run economic growth in Nigeria during the period under investigation. THANK YOU