The Causality BetweenElectricity Consumption and Economic growth for Nigeria: A Time Varying Framework

Abstract

The relationship between electricity consumption and economic growth is vital to an understanding of the dynamics of economic growth and development. A perspective in the literature suggest that there is apositive association between electricity consumption and economic growth, implying that the economy cannot grow at a rate much higher than the rate of increase in the electricity supply. This study employs the state of the art econometric approach to investigate whether the relationship is time varying. The results of non-linear unit root test suggest that real GDP is stationary at levels, while electricity consumption is integrated of order (1) as such cointegration test is not valid when a time series is stationary. Further, whether energy variable has unit root has implications for the correct modelling of energy and economic growth. The results of the Granger causality test using F statistics finds evidence supporting the neutrality hypothesis, implying an absence of causality. In this case, fluctuations in economic growth will not be transmitted back to electricity consumption. The absence of causality further points us to the fact that a reduction in electricity consumption through energy conservation policies will not impact economic growth.