ENERGY CONSUMPTION AND ECONOMIC GROWTH IN NIGERIA (1986-2016).
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ENERGY CONSUMPTION AND ECONOMIC GROWTH IN NIGERIA (1986-2016).
Chapter one
INTRODUCTION
1.1 Background of the Study
Globalisation has completely transformed the globe, as everyone is aware; it has presented numerous issues, but energy has garnered significant attention from researchers. In today’s globalising society, energy demand is rapidly increasing.
Most countries, including Nigeria, are experiencing energy constraint, which is having a negative impact on their economic growth. Countries are now looking for alternate and renewable energy sources (Chaudhry, Safdar, & Farooq, 2012).
Energy is one of the primary inputs into production. As a result, energy is critical to both developed and growing economies. The oil crises of the 1970s, as well as the extraordinary spikes in oil prices in the 1990s and 2000s, demonstrated the importance of energy, elevating it to the status of a vital economic resource.
As a result, energy use has a direct impact on economic growth. According to Alam (2006), “energy is the indispensable force driving all economic activities”.
Energy is one of the most important resources needed in all manufacturing processes, and this has raised foreign income for countries that export energy products. Most countries, particularly less developed ones, have benefited from technology transfer during the discovery, manufacturing, and marketing stages.
Many previously unemployed persons have found work in the energy industry. Infrastructure and economical activities of communities have improved as a result of energy resource extraction.
Based on the preceding ideas, consistent energy supply becomes critical to the nation’s economic and infrastructure transformation (Sama and Tah, 2016).
As a result, several research have been undertaken on the relationship between economic growth and energy consumption (Yilmaz and Hasan, 2014; Sama and Tah, 2016). According to Ojinnaka (2008), energy usage correlates with national product.
His research found that energy consumption per capita is a significant predictor of economic growth. The continuous increase in global output has raised the demand for energy, but the world’s insufficient oil and natural gas supplies impedes long-term economic progress.
Electricity, on the other hand, is a secondary energy resource that is produced by converting primary energy resources such as fossil fuels (natural gas, oil, coal) and wind energy.
Coal has been the most commonly used fuel in electricity generation, but the share of nuclear power and natural gas consumption has climbed in recent years, while the use of oil in electricity generation has decreased since the late 1970s due to steep increases in oil costs.
In 2010, global net power generation was 20.2 trillion kilowatt-hours, with a 93% rise projected by 2040 to 39.0 trillion kilowatt-hours. Electricity demand in OECD countries is growing at a slower rate than in non-OECD countries (US Energy Information Administration, 2013; Yilmaz and Hasan, 2014).
Evidence indicates that Nigeria is largely an energy storage facility, accommodating resources such as coal and lignite, natural gas, crude oil, solar, hydro, nuclear, wood fuel, geothermal, tide, biogas, and biomass.
Despite the immense resources available, only four sources (coal, crude oil, natural gas, and hydro) are being utilised in processed forms, while two others (wood fuel and solar) are used in their raw forms for heating, cooking, and lighting (Ogundipe and Apata, 2013).
Economic growth remains a significant macroeconomic notion of interest for most researchers and policymakers around the world (Abaidoo, 2015). The ongoing interest in this macroeconomic indicator arises from its critical function in influencing other important aspects of an economy and livelihoods.
Nigeria is now regarded as one of Africa’s leading developing nations, with abundant natural resources, especially potential energy resources. However, expanding access to electricity in Nigeria has proven to be not only a constant difficulty, but also a serious matter for the international community (Ogundipe and Apata, 2013).
Economic growth is required for a country to progress from third world to developed status. For a developing country like Nigeria, the larger the economic growth, the better its chances of becoming more developed; with proper use of energy resources to meet demand, the country would experience high levels of economic growth (Ogundipe and Apata, 2013).
1.2 Statement of the Problem
Energy is an important part of any developed or emerging country. Although electricity has contributed to Nigeria’s total GDP, the country continues to face a number of electricity supply issues. The power subsector has been unable to meet the country’s demand for electricity, causing numerous challenges that are harming economic progress.
Energy efficiency and consumption not only anticipate lower energy costs, but also increase income through higher productivity. The majority of Nigerians rely on fossil fuel and fuel wood (firewood).
The over-reliance on fossil fuels and fuel wood (mostly utilised by poor rural commuters) has resulted in insufficient capacity to meet rising demand. Because energy has become a critical role for any country’s economic progress, it increases efficiency and production.
Extensive industry, urbanisation, and population growth have led to increased energy consumption, particularly in emerging countries such as Nigeria.
The relationship between energy consumption and economic growth has been intensively studied over the last decade, and it is receiving more attention in Sub-Saharan Africa.
Nonetheless, there is no unanimity on the relationship between energy use and economic progress, especially in Nigeria. Furthermore, this issue has not been properly investigated for all forms of energy in Nigeria.
1.3 RESEARCH QUESTIONS.
The study aims to address the following research questions:
What is the trend analysis for Nigeria’s energy consumption?
What is the relationship between energy use (electricity, crude oil, and coal) and Nigeria’s economic growth?
1.4 Objectives of the Study
The primary goal of the study is to investigate the relationship between energy use and economic growth in Nigeria. Hence, the following are specific aims.
To investigate the trend analysis of energy usage in Nigeria.
To investigate the relationship between energy (electricity) usage and Nigeria’s economic growth.
To propose policy suggestions based on the findings of the study.
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