ARDL BDM t-test and Robust Inference for the Long-Run Relationship Between Energy Consumption and Economic Growth in Nigeria: 1976-2015.

Abstract

Although there is a voluminous literature focused on examining whether energy use granger causes growth of GDP or growth of GDP granger causes energy use, it is still inconclusive just as the understanding regarding the concept of growth which has been studied right from the time of Adam Smith, but yet still remains largely inconclusive. The results from different studies are ambiguous not only because of varying statistical techniques but also because of different parameters that have been used in these models. This paper tests, in a country specific context, the long-run relationship between energy access, and economic growth for Nigeria from 1976-2015 by employing (ARDL BDM t-test) Error Correction Mechanism tests for cointegration in a single-equation Framework. We adopt a three stage approach, consisting of unit root, cointegration and Granger causality tests to study the dynamic causal relationship between energy consumption, energy prices and growth. Results show there is a
stable relationship between GDP, oil price and energy consumption. By estimating these long run relationships and testing for causality using the Toda Yammoto approach, we found evidence of unidirectional causality between energy consumption and GDP. This provides evidence for the energy growth hypothesis consistent in the literature. Thus if we cut back on our energy use, growth would abandon us.