IMPACT OF ELECTRICITY CONSUMPTION ON ECONOMIC GROWTH IN NIGERIA: EVIDENCE FROM DYNAMIC AUTOREGRESSIVE DISTRIBUTED LAG (DARDL)

Abstract

  This study examines the impact of electricity consumption on economic growth in Nigeria from 1980 to 2023 using the Dynamic Autoregressive Distributed Lag (D-ARDL) simulation model. The study incorporates foreign direct investment (FDI) and labour force as control variables to provide a comprehensive understanding of the energy–growth nexus. Unit root and cointegration tests confirm the existence of a stable long-run relationship among the variables. The Error Correction Model (ECM) results reveal a negative and statistically significant error correction term, indicating a rapid adjustment of approximately 109.2% from short-run disequilibrium to the long-run equilibrium within one period. In the short run, electricity consumption exerts a positive and statistically significant effect on economic growth, while foreign direct investment also has a positive and highly significant impact. The labour force exhibits a positive but weakly significant effect. The dynamic simulations further show that positive shocks to electricity consumption generate sustained increases in economic growth over time, confirming the importance of a reliable electricity supply in stimulating economic activity. Diagnostic tests confirm the model’s robustness, stability, normality, and correct specification. The findings suggest that expanding electricity access, improving power infrastructure, and attracting foreign direct investment are essential for sustaining economic growth in Nigeria. Accordingly, the study recommends policies that prioritize investment in electricity infrastructure, strengthen the investment climate to attract FDI, and enhance labour productivity to promote sustainable economic development.