Electricity Consumption, Inflation, and Economic Growth in Nigeria: A Dynamic Causality Test

Abstract

This paper examines the dynamic causal linkages between electricity consumption and economic growth in Nigeria within a trivariate VECM, for the period 1971-2012. The paper obviates the variable omission bias, and the use of cross-sectional techniques that characterise most existing studies. The results show that there is a distinct causal flow from electricity consumption to economic growth: both in the short run and in the long run. This finding supports the electricity-led growth hypothesis, as documented in the literature. The paper urges policy-makers in Nigeria to implement policies which enhance the generation of electricity in order to engineer economic growth. Appropriate monetary policies must also be put in place, in order to moderate inflation, thus enhancing growth