Electricity Consumption, Institutions and Economic Growth in Nigeria: What Does Evidence Say So Far?

Abstract

This study applies bound test approach to VAR to investigate the long-run and short run relationship between institutional quality, electricity consumption and economic growth in Nigeria based on annual data for the period 1980-2011. In the first step, we examine the degree of integration between all the variables and find that the variables are mixture of order of integration. In the second step, we investigate the long-run relationship between institutions, electricity consumption and economic growth; the results based on the bounds testing procedure reveal that there exists co integration among the variables used in the model. In the third step, we estimate the long run and short run relationship and test for causality using ARDL and Wald test approach and find a positive direct relationship between institutions, electricity consumption and economic growth. The result of granger non causality test support the existence of both short run and long-run bidirectional relationship between GDP and electricity consumption and a unidirectional causality running from institutions to economic growth. Further, our analyses reveal that causation runs from institutions to electricity consumption and vice versa in both period. Implying policy makers should adopt policies that can ensure total overhauling of our institutions capable of  driving  investment in infrastructures as well as  reorientation of the individuals in term of altitudes, trust, respect for rule of law and accountability, thereby encourage long-term contract, lower risk of doing business and improve human capital that is necessary for growth.

Key words: Institutions, Electricity consumption, Co integration, Growth, Granger causality