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Electricity Generation and Economic Growth in Nigeria: A Nonlinear ARDL Analysis

Author

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  • SAH Ukwenya Shuaib

    (Economics Department, Faculty of Social Sciences, Bingham University Karu, Nigeria)

  • John Olu-Coris Aiyedogbon

    (Economics Department, Faculty of Social Sciences, Bingham University Karu, Nigeria)

  • Marvelous Aigbedion

    (Economics Department, Faculty of Social Sciences, Bingham University Karu, Nigeria)

Abstract

Nigeria is endowed with a variety of renewable energy sources, including solar and wind power but the country energy mix is mostly powered by natural gas and hydropower. However, numerous problems across the entire value chain, from production to transmission, distribution, gas supply, tax collection to losses and tariffs,confront Nigeria's power industry. Equally, a number of reforms have been implemented in the industry. The most important reform was the Electricity Power Sector Reform Act of 2005, which ended the long-standing monopoly of the now-defunct National Electric Power Authority (NEPA) and allowed private companies to engage in the production, transmission, and distribution of electricity. Despite series of reforms within the electricity sector,alarmingly poor electricity conditions exist with inconsistent economic growth rates. Thus, the paper examines how electricity generation influences economic growth in Nigeria; using the Non-Linear Autoregressive Distributed Lag (NARDL) estimation technique from 1980 to 2022. Finding reveals differential impacts of positive (ΔEPG^+) and negative (ΔEPG^-) changes in electricity power generation on economic growth. The more pronounced effect of positive changes suggests that increases in electricity power generation have a greater and more immediate impact on the economic growth (GDP) compared to decreases. Conversely,changes in capital growth (ΔCPTG) do not exhibit short-run significance, indicating that fluctuations in capital growth do not instantaneouslyaffect economic growth. In contrast, the significant negative impact of changes in the natural log of labour (ΔlnLBR) implies that alterations in labour dynamics have tangible and adverse effects on economic growth in the short run. Turning to the long-run perspective, the constant term's significance at the 10% level (-248.338) suggests a persistent, albeit relatively muted, impact in the absence of changes in the independent variables. In the long run, the positive and significant coefficient (0.576) associated with electricity power generation (EPG) signifies its pivotal role as a driving force in the electricity power generation sector. Lagged variables for capital growth (CPTG_(t-1)) and the natural log of labour (lnBR_(t-1)) fail to achieve significance, indicating limited long-run impact of these variables on economic growth. Considering the pronounced short-run impact of positive changes in electricity power generation, policymakers should consider incentivizing and promoting initiatives that lead to increased electricity production. This can contribute to a more immediate boost in economic activity. Also, due to lack of short-run significance for changes in capital growth,policymakers may focus on longer-term strategies for capital investment in the electricity sector.

Suggested Citation

  • SAH Ukwenya Shuaib & John Olu-Coris Aiyedogbon & Marvelous Aigbedion, 2024. "Electricity Generation and Economic Growth in Nigeria: A Nonlinear ARDL Analysis," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(7), pages 3144-3157, July.
    • Handle: RePEc:bcp:journl:v:8:y:2024:i:7:p:3144-3157
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    References listed on IDEAS

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    1. Dekle, Robert & Hamada, Koichi, 2015. "Japanese monetary policy and international spillovers," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 175-199.
    2. Hlongwane, Nyiko Worship & Daw, Olebogeng David, 2021. "An increase of electricity generation can lead to economic growth in South Africa," MPRA Paper 111018, University Library of Munich, Germany.
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