Linear and Non-Linear Relationship between Energy Consumption and Economic Growth in Nigeria

An Application of the Arima Models

Abstract

Energy consumption refers to the amount of energy consumed by individuals, businesses, and industries in order to meet their needs and to carry out their activities. The primary sources of energy consumption are fossil fuels such as coal, oil, and natural gas, as well as renewable sources such as solar, wind, and hydropower. This study examines the correlation between energy consumption and economic growth in Nigeria, utilizing both linear and nonlinear models, including ARIMA. The stability and acceptability of the data for time series analysis are confirmed through a thorough examination of descriptive statistics and unit root tests. The linear regression analysis reveals the substantial impact of energy consumption and inflation on GDP. However, the presence of residual autocorrelation indicates the need for further improvements in the model. The ideal ARIMA model for predicting GDP differentials is identified as ARIMA (3,1,1) through forecasting. The model assumptions are confirmed by validation using the Ljung-Box Q test. The results highlight a strong link between energy use and economic development, supporting the need for sustainable energy strategies. Suggested approaches including expanding the range of energy sources, advocating for efficiency initiatives, improving infrastructure, encouraging policy collaboration, and implementing rigorous monitoring and evaluation systems. These findings offer essential viewpoints for comprehending economic dynamics and plotting future courses towards sustainable growth in Nigeria.