ANALYSIS OF THE EFFECT OF ENERGY CONSUMPTION, CO2 EMISSION ON ECONOMIC GROWTH IN NIGERIA

Abstract

Developing economy like Nigeria requires energy consumption by productive sector to drive her growing economy. Most ecological economists have argued that the increasing energy consumption leads to increase in CO² emission and economic growth in Nigeria. However, few studies have been carried out to investigate the relationship between energy consumption, CO² emission and economic growth in Nigeria. Most related studies lack appropriate theoretical framework, the inclusion of relevant variable and the adoption of relevant models; these may have affected the result of their studies. It is against this background that this study investigates the effect of energy consumption, CO² emission on economic growth in Nigeria, for the period of 1981 to 2015. The paper relied on Zivot-Andrews unit root technique to examine the unit roots properties of the variables the variables have structural breaks ranging from 1995 to 2010. Also, the ARDL model was employed to examine the effect of energy consumption and CO² emission on economic growth. In addition to the explanatory variable are capital and labour. The Granger causality test technique was employed to examine the relationship between energy consumption, CO² emission and economic growth. The bounds testing results infer that long-run relationship run from economic growth (RGDP) to Capital, Labour, energy consumption and CO² emission. The estimated result of the ARDL models revealed that energy consumption, capital and labour contribute positively to economic growth. While CO² emission contribute negatively to economic growth in the short-run. This result was supported by the long-run estimated. Though in the long-run, capital and labour were not significant. The Granger causality test result revealed a uni-directional causality from capital to economic growth and labour to economic growth. But a bi-directional causality was expressed between energy consumption and economic growth and CO² emission and economic growth. An important recommendation resulting from these results is that policy makers should begin to implement policies, especially the energy policy of 2003, toward encouraging the use of alternative energy sources such as solar, wind, and biomass.