The relationship between energy consumption and national income of Nigeria

Abstract

The purpose of this paper is to examine the causal relationship between energy consumption and National income of Nigeria. The importance of identifying the direction of causality emanates from its relevance in national policy-making issues regarding energy conservation. There are various evidences indicating some level of relation between national income and energy consumption of many countries: developed, developing, and third world alike. A relation that energy consumption enhances national income has been documented by Rakhshan for Canada, China, Japan (poor positive relation due to its efficient and successful energy conservation policy over the past decades), Iran, and Russia. More so, Amirat and Bouri found similar relation for Algerian Case. Also, Huang, Hwang, and Yang found no causal relationship between energy consumption and economic growth in the low income group whereas in the middle income groups, economic growth enhances energy consumption; and in the high income group countries, economic growth negatively affects energy consumption due to great environmental improvement impacts. On the other hand, a neutral relation between energy consumption and national income has also been verified to exist in Turkey according to Yalta's study. Therefore this paper evaluate the relationship between energy consumption and national income in Nigeria for the periods 1990 to 2010. Pearson correlation coefficient was used to determine the nature of the relationship that exist between energy consumption and national income while Granger causality test was employed to identify the direction of the relationship. The variables that were used include national income measured by GDP, energy consumption measured by its index, capital input and manufacturing capacity utilization. The energy combined includes coal, electricity (hydro-power), natural gas and petroleum products.

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“…For example, there was only a positive relationship for households using electricity for lighting while it was a negative relationship for households using kerosene. In the same vein, Kabir et al (2013) and Alege et al, (2016) assessed this relationship for Nigeria and found evidence of a strong positive relation that flows from energy consumption to national income. The study by Pachauri et al (2012) also found a bi-directional relationship between energy access and income, implying that increased energy access strengthens growth of income and use of energy tends to rise with income levels.…”