The Determinants of Electricity Demands in Nigeria from 1970-2016 Error Correction Mechanism Approach

Abstract

This research work seeks to examine the determinants for electricity demand in Nigeria via ADF, PP unit root testing and Johansen Co-integration techniques covering the period 1970-2015 with the objectives of ascertaining the relationship between electricity demand and economic growth. ELED was the dependent variables, while IPC, PPE, DU, PD, LD, NHP, NMP and ERP served as the independent variables. all the variables were stationary at first difference with ADF and PP, with the exception of ERP being at level. The study found the existence of a unique co-integrating relationship among the variables in the model using the trace statistics, which led us to determine the ECM, where three variables (PD, NMP, NHP) were significant at the short run, the remaining five (IPC, PPE, DU, LD, ERP) were not significant in the short run to explain ELED. The ECM coefficient divulges that the disequilibrium in the country is corrected at the speed rate of 118.8% annually, while all the coefficient of the independents variables conforms with the a prior expectations with 0.006384, 0.49117, 0.92357, 0.130045, 1.42573, 4.74446 for IPC, DU, PD, LD, NHP, NMP and ERP respectively. Prominent among the policy recommendation, is the need for government to undertake a guided process of liberalizing the electricity sector to allow new entrants into the market for competitiveness and improved efficiency as the insignificance of the electricity price.

Keywords: Electricity Demand, Domestic Output, Economic Growth.