RELATIONSHIP BETWEEN ELECTRICITY CONSUMPTION AND THE ECONOMIC GROWTH IN NIGERIA.
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RELATIONSHIP BETWEEN ELECTRICITY CONSUMPTION AND THE ECONOMIC GROWTH IN NIGERIA.
Chapter one
INTRODUCTION
1.1 Background for the Study
The adequacy of a country’s power supply business is crucial to its growth, economy, and national security. Indeed, the link between electricity supply and economic growth is so strong that electric energy generation is not only a substantial and growing source of energy for us, but also a growth business and a ‘completely new industry’ (Okongwu, 1986).
Energy is a necessary input for both production and consumption activities, making it a critical source of economic development. Nigeria is no exception.
It is instructive to note that electric power is vital for economic growth and quality of life not only because it fosters the productivity of capital, labour, and other factors of production, but also because increased consumption of energy, particularly commercial energy like electricity, signifies a country’s high economic status (Adebola, 2011). These findings have prompted experts to study the role of electricity in various countries.
However, neither Classical nor Neoclassical economists recognised electric energy as a factor of production. Today, economists such as Alam (2006), as quoted in Adebola (2011), discover in his study on ‘Economic Growth with Energy’ that energy serves not only as a factor of production, but also as a booster to a nation’s growth.
As a result, the components of production in classical and neoclassical economics have shifted from capital, labour, and technology to include energy. It should be emphasised that electricity has an impact on both factors of production and capital accumulation.
The literature extensively documents the links between energy use and economic growth. However, the dispute over the causal relationship between energy consumption and economic growth has gained traction in recent years.
According to Emeka (2010), the essential question in this discussion has been whether power use generates economic growth or whether economic growth leads to electricity consumption. These causation difficulties, therefore, indicate the need for further inquiry.
Indeed, most studies tying electricity consumption to economic growth were conducted using causality tests for several countries, but there are fewer studies that prove the relationship between the two variables in literatures that used cointegration techniques for individual countries such as Nigeria. This study will therefore fill the gap.
Without a doubt, Nigeria is currently facing the problem of delivering a sustainable, adequate, dependable, and efficient electrical supply to residential, commercial, and industrial customers.
This circumstance has had a negative impact on citizens’ social and economic lives (Jonathan 2010). The tendency, however, has frequently been hampered by the persistently poor energy supply that plagues this embryonic economy.
Like most countries in the West African subregion, the country’s energy production rate continues to lag behind the rate of increase in demand from its industrial and services sectors (Adoghe, 2010; Igbinovia and Odiase, 2009; Iwayemi, 2008; Okongwu, 1986, to name a few examples).
Although the country’s electric energy generation and supply difficulties have been well documented over the years, worsening supply conditions have raised growing concerns in recent years about the long-term impact of the situation on the country’s economic growth prospects and quality of life (Iwayemi, 2008).
The preceding lays the groundwork for investigating the relationship between energy usage and economic growth in Nigeria.
1.2 Statement of Problem
Every nation’s socioeconomic and technical progress depends heavily on electricity. Nigeria’s electrical consumption considerably outstrips its supply, which is epileptic in nature.
Despite the fact that the country has abundant natural resources, it is plagued by severe electricity problems that impede its development.
It is well acknowledged that there is a strong relationship between socioeconomic progress and the availability of electricity. Given the foregoing, the study aims to investigate the relationship between power consumption and economic growth in Nigeria.
1.3 Objectives of the Study
In general, the purpose of this study is to investigate the empirical relationship between Nigerian electricity consumption and economic growth.
Nevertheless, it will:
1. Evaluate the profile of power use in Nigeria from 1970 to 2009.
2. Investigate the link between electricity usage and economic growth in Nigeria.
1.4 Research Questions.
The following questions will guide our study.
1. What is the trend in Nigerian electricity consumption from 1970 to 2009?
2. Does power usage help to Nigeria’s economic growth?
1.5 Hypothesis of the Study
This idea was evaluated during the investigation.
H0: There is no substantial correlation between electricity usage and economic growth in Nigeria.
H1: There is a strong link between energy use and economic growth in Nigeria.
1.6 Significance of the Study
The study is relevant in the sense that it will contribute to improving the country’s inconsistent supply of power to households, businesses, and the government. This study identifies electricity’s important significance in the process of economic development.
Electrical energy supply is not only a big and expanding source of energy; it is also for us a growth industry as well as a ‘completely new industry’ As a result, this study will help policymakers and the government make PHCN more efficient.
The relevance of a dynamic power sector is important due to the growing demand for sustainable development. This empirical study will also be significant for policy recommendations on power consumption and economic growth in Nigeria, as well as for the worldwide panel.
The study will assist offer dependable service, increase efficiency, and boost growth for small businesses that rely on power, which can have a significant influence on the lives of rural and urban residents by providing jobs.
The study will assist households, businesses, and the government by improving the quality, efficiency, and dependability of electricity delivery. It will contribute to the existing body of literature on energy economics.
1.7 Brief Methodology.
The primary goal of this research is to experimentally investigate the relationship between power usage and economic growth in Nigeria. It uses descriptive and inferential approaches to analyse the data. The Ordinary Least Squares method was utilised in addition to the descriptive and analytical methodologies outlined before.
In this situation, a single model was developed, with appropriate econometric methodologies used. The data for this study is primarily secondary. The secondary data includes annual time series from 1970 to 2009.
All data were obtained from the World Population Indicator (2012) and the Central Bank of Nigeria’s Annual Statistical Bulletin (2009). In this study, real GDP is reported in million Naira (the Nigerian currency), while electricity usage is expressed in kilowatts per hour.
1.1 Plan of Study
The study is organised into five chapters. The first chapter contains background information about the subject issue, explaining the need for the investigation. The second chapter discusses related material on the relationship between energy usage and economic growth in Nigeria.
The theoretical framework and research technique were given in Chapter 3, while the empirical results and discussion were presented in Chapter 4. The concluding comments in Chapter 5 reflect on the summary, conclusion, and recommendations based on the study’s findings.
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