The Impact of Energy Consumption and Energy Trade on Economic Growth in Nigeria
Chapter One
Research Objectives
The general aim of the study is to examine the interaction between energy production, energy consumption, energy trade and economic growth in Nigeria. The specific objectives are:
- To examine how energy production affect economic growth
- To investigate the effect of energy consumption on economic growth
- To assess the impact of energy trade on economic growth
- To examine how energy production, energy consumption and energy trade influence economic growth
CHAPTER TWO
LITERATURE REVIEW
Conceptual Review
Energy as a Factor of Production
The economy can’t function beyond the limits imposed by thermodynamics and the conservation of matter (Ayres and Kneese, 1969; Boulding, 1966). According to the mass-balance principle, more or equal amounts of matter must be employed as inputs with the remaining waste product or pollutant to produce a specific amount of material. As a result, minimum material inputs are required for every manufacturing process that produces material outputs. As defined by the second rule of thermodynamics (the efficiency law), performing physical labour necessitates using the least energy possible. It takes more energy than this minimum to do out transformations in a limited time. All creation requires some level of effort. For this reason, all economic processes must demand, and there must be limitations to replacing other components for energy so that energy is always an essential input of production (Stern, 1997a). Reproducibility is defined as the ability to make the same thing again and again, while non-reproducibility is defined as the inability to make the same thing again and again. While energy and matter are nonreproducible components of production, capital, labour, and even natural resources are reproducible.
In order to get energy and matter, which are nonrenewable, one must harm the ecosystem. The entropy law states that exergy usable energy cannot be regenerated because of this. Even if certain techniques of capturing energy may be more harmful to human health or the environment than others, all of them are harmful to the environment in one way or another. Plants and animals are very poor at converting solar energy into exergy or work that humans can use. Therefore it takes a huge quantity of energy to acquire a given amount of net energy from the sun (Hall et al., 1986). Because of this, the industrial revolution’s move to fossil fuels freed up the energy supply and, therefore, production and growth limits that had previously been in place (Wrigley, 1988).
There are two types of inputs in production: primary and intermediate. Primary inputs exist at the beginning of the period under examination and are not directly utilised in production (though they may deteriorate or increase from period to period). The fundamental components of production in as revealed by Akinlo (2018) are capital (capitalists), labour (labour-intensive), and land (land-intensive). Primary input prices are considered compensation to the proprietors of the primary inputs for services rendered directly or indirectly via the intermediate inputs created. Mainstream growth theory has been influenced by this paradigm, which emphasises the importance of capital and labour. Economic theory has progressively shifted away from using land as a component, encompassing all-natural resource inputs, since its value share of GDP declined significantly in the twentieth century (Schultz, 2018).
Issues of Energy in Nigeria
Any country’s economic development is dependent on the availability of energy. Energy commodities aid economic growth by boosting productivity and revenue and providing jobs via the use of these commodities. An effective energy market aims to provide the necessary energy resources when it comes to the economy’s industrial, transportation, and service sectors. As a result, sustained economic development relies on the availability of energy.
Globalisation and market liberalisation of the global economy may be traced back to the economic boom of the 1990s, which resulted in a better quality of life for inhabitants, especially in Sub Sahara countries. To achieve industrialisation, each nation must have an abundance of energy resources available. It is estimated that more than 9.0 million jobs are directly and indirectly supported by the energy sector (API), which is more than 5% of the country’s overall workforce (Akinlo, 2018). More than $1 trillion in economic value was generated by the energy sector in the United States in 2012, accounting for 7.7% of GDP (WEF, 2012). Additionally, the energy industry is a driver for sustainable growth and improves resource efficiency, in addition to its enormous influence on job creation. Even the global economy and any nation’s development depend on energy availability.
In addition, there is still a significant shortfall in Nigeria’s electrical producing capacity. There was a 23.1 percent increase in total installed capacity for electricity production in 2014 compared to 2012 when the total installed capacity was 12,232 MW. Energy production has fluctuated between 2,623.1 MW/hr and 3,485.5 MW/hr between 2007 and 2014, compared to an expected demand of 10,000MW per day (CBN Annual Reports). In reality, production hasn’t surpassed 3,000MW per hour over the last 15 years. There was a substantial disparity between installed and operating capacity in the electrical sub-sector, as shown by an average of less than 40% over the time covered (Iwayemi, 2008:18).
CHAPTER THREE
RESEARCH METHODOLOGY
This chapter discusses the methodology used in this study. This includes the population, the source, and the methods used to collect the data. The techniques used in the analysis of this data and the justification for the technique used are also included in the chapter. Finally, the variable measurement, model specification, and justification for using control variables were presented.
Research Design
The study would employ the quantitative research method. Quantitative research aims to gain better information and knowledge of the various environment. Researchers employ quantitative techniques to examine circumstances or occurrences that impact individuals. Quantitative research provides objective facts that can be easily conveyed via statistical analysis. This study would adopt a survey research design. The design aims to analyse and explain the issues under investigation, the interaction between energy production, energy consumption, energy trade and economic growth in Nigeria. by collecting data at only one point without the researcher’s influences in the process. This would enable the researcher to ascertain the effect between and among the study variables. Authors with related objectives also adapted this design (Adediran, 2008; Faisal et al., 2017; Gielen, 2019)
This study would adopt two stages of analysis to carry out data analysis: descriptive and inferential analysis. The descriptive analysis, which is the first stage, would be carried out using percentages and frequencies and other descriptive items to show variations in responses and opinions. The second stage is the inferential analysis carried out using the regression analysis.
Study Area
Nigeria is the Sub-Saharan Africa’s greatest economy stifled by electricity sector constraints. Nigeria has abundant oil, gas, hydroelectric, and solar resources, and it has the capacity to create 12,522 MW of electricity from current facilities. A nation of more over 195 million people, on the other hand, can only generate roughly 4,000 MW on most days, which is not enough. With the aid of Power Africa, distribution businesses in Nigeria have increased income by over $250 million – money that can be spent in the network, improving service and extending access. The Nigerian power industry has a wide range of issues, including policy enforcement, regulatory ambiguity, gas supply, transmission system limits, and substantial power sector planning gaps that have prevented the sector from being commercially viable.
CHAPTER FOUR
RESULTS AND DISCUSSIONS
This chapter provides information on the analysis of data and the interpretation of the results on the interaction between energy production, energy consumption, energy trade and trade growth in Nigeria. The chapter shows the result of the descriptive analysis and Johansen test results, Hausman tests and the result of the regression analysis, and the discussion of findings.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary
Using time series data spanning 2011–2020, this study examined the relationship between Nigerias energy production, energy consumption including trade and economic growth. The long-term connection between the estimated variables was investigated using the A.R.D.L. bounds testing technique. For Nigeria, there was strong evidence of co-integration between trade, power consumption, economic development, and urbanization. Economic expansion, trade, and urbanization have a long-term and short-term influence on power usage. Urbanization looks to be the primary driver of power use, according to the latest data.
There is a short-term unidirectional causation between electricity usage and urbanization based on the Granger causality studies. Increasing urban in-migration would, thus, logically lead to an increase in overall power demand. The feedback hypothesis is further supported by the discovery in Nigeria of long-term bidirectional causation between electricity usage and urbanization. Government investment in renewable energy production should continue to be a priority for Nigeria to keep pace with rapid urbanization. Urbanization and electricity consumption are critical to the growth of the Nigerian economy, as shown by the concept of a feedback mechanism between the two. There has been no evidence of a long-term or short-term link between economic growth and energy use, which supports the neutrality theory. This implies that changes in Nigeria’s economic development will have little impact on the country’s power consumption. Policymakers should pay attention to these results because they show that enacting an energy conservation strategy in this area will have no negative consequences on MINT’s economic development.
The empirical findings of this research contribute to the literature and give enough information to policymakers to better understand the economic growth, power consumption nexus in the context of urbanization, and to create energy policies in Nigeria. Government of Nigeria may also promote and spend more money in R&D to foster technological innovation that may enhance energy savings. In this way, environmental deterioration may be slowed as the Nigerian economy expands at the same time. In addition, while designing and executing energy policy, the government may take into account economic phases.
Conclusion
. For the model’s long-term connection, a test was done with several structural fractures. A long-term link between the variables was found, despite multiple structural breakdowns, according to the findings. Regression findings from FMOLS, DOLS and CCR show that urbanization has a negative and inelastic statistically significant effect on economic growth across the studied period. We discovered that power usage is a major contributor to economic growth. These data support the theory that Nigerian economic progress may be attributed to the availability of electricity. In light of the study’s results, the government and officials should take action to reduce the fast expansion of cities throughout the nation. Rural-to-urban migration will be reduced if rural communities are given the infrastructure and other fundamental necessities they require to thrive. It’s imperative that the country’s energy production improves since it has a direct impact on economic development. There is a need for an increase in the country’s power production because of the country’s generational deficit, which is now in excess of 180 million. As a developing country, Nigeria has to focus on ecologically friendly renewable energy sources including solar and wind power; geothermal; biomass; biogas; tidal power; and wave power. Because of the growing awareness and demand for renewable and environmentally friendly energy sources throughout the world, this is a crucial step. The nation are urged to shift their energy mix to more environmentally friendly methods by politicians, environmental and energy economists, and others.
Recommendations
Based on the empirical result, the study recommends the implementation of the following policies:
- Energy consumption policy. The country’s energy demand management strategy must be bolstered. To put it simply, this means that the government must have access to trustworthy indicators, metrics, and clean energy technology that encourages rational energy usage to implement the policy/strategy successfully.
- Legal and Regulatory Assistance: A pragmatic policy implication by public authorities that has the ability to stimulate the use of environmentally friendly technology equipment should be implemented in light of the study results. As a result, businesses might be incentivized to use and install renewable energy-producing devices. There is little doubt that this will have a significant impact on both corporate productivity and environmental health.
- Transfer and purchase of technology. It’s imperative that the Clean Development Mechanism (CDM), an instrument sponsored by advanced countries with the goal of encouraging sustainability in low-income and newly developed economies, fulfills its mandate in this scenario.
- Support for the building of institutions For this reason, it is necessary to gather the relevant data and conduct adequate research to determine whether or not there is a need for development and efficiency in energy use with the ultimate goal of reducing CO2. Thus, the expansion and use of ecologically feasible sources of energy in Nigeria, especially for decentralized electrical power generation and delivery into the Nigerian market, necessitates the establishment of a proper institutional framework. Only two of Nigeria’s national energy research centers are now devoted to solar energy science and technology. Because Nigeria is a party to the Convention, it is expected to fulfill its obligations and satisfy the UNFCCC’s standards in accordance with its development goals. Additionally, the government acknowledges the help provided by bilateral and multilateral organizations in the fight against global warming. While the level of assistance received so far has been impressive, it’s evident that it’s not enough for the country to carry out its responsibilities effectively.
Suggestions For Further Studies
However, it should be highlighted that the study’s data may not be lengthy enough, despite the high number of observations and test findings. This research does not take into account the influence of industry and population electricity consumption on economic growth. This might be a starting point for additional investigation.
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