Electricity consumption, urbanization, and economic growth in Nigeria: New insights from combined cointegration amidst structural breaks

• Published date: 01 February 2021
• Author: Solomon P. Nathaniel,Festus V. Bekun
• Date: 01 February 2021
• DOI: http://doi.org/10.1002/pa.2102

ACADEMIC PAPER

Electricity consumption, urbanization, and economic growth

in Nigeria: New insights from combined cointegration amidst

structural breaks

Solomon P. Nathaniel

1

| Festus V. Bekun

2,3

1

Economics, University of Lagos, Akoka,

Nigeria

2

Faculty of Economics Administrative and

Social Sciences, Istanbul Gelisim University,

Istanbul, Turkey

3

Department of Accounting, Analysis and

Audit, School of Economics and Management,

South Ural State University, Chelyabinsk,

Russia

Correspondence

Solomon P. Nathaniel, Economics, University

of Lagos, Unilag Road, Akoka, Nigeria.

Email: nathaniel_solomon21@yahoo.com

The study explores the link between electricity consumption, urbanization, and eco-

nomic growth in Nigeria from 1971 to 2014. The bounds test and the Bayer and

Hanck (Journal of Time Series Analysis,2013,34(1), 83–95) cointegration tests affirm

cointegrating relationship. Electricity consumption increases economic growth in both

time periods, while the impact of urbanization appears to inhibit growth. The fully

modified OLS, dynamic OLS, and the canonical cointegrating regression confirm the

robustness of the findings. The vector error correction model Granger causality test

supports the neutrality hypothesis in theshort run and the feedback hypothesis among

the variables in the long run. Therefore, policies to ensure efficient electricity supply,

curb rapid urbanization, and promotesustainable economic growth were suggested.

1|INTRODUCTION

There are plethor a of studies o n growth an d electric ity consum p-

tion in the literature. The link between both have been clearly

established as well. Both variables seem to be highly correlated

(EIA, 2013). Electricity is the fulcrum of economic progress. It

drives manufacturing, complements capital and labor and a

shortage of it precipitate growth (Jaiyesimi, Osinubi, & Amaghion-

yeodiwe, 2017; Lin & Liu, 2016; Pinson & Madsen, 2014; Shahbaz,

Chaudhary, & Ozturk, 2017) and hampers production (Abeberese,

2017; Costantini & Martini, 2010; Khan et al., 2016; Sarwar,

Chen, & Waheed, 2017; Shahbaz, 2015). Studies like (Aklin, Cheng,

Urpelainen, Ganesan, & Jain, 2016; Allcott, Collard-Wexler, &

O'Connell, 2016; Baskaran, Min, & Uppal, 2015; Fisher-Vanden,

Mansur, & Wang, 2015; Shahbaz, 2015; Wolfram, Shelef, & Gertler,

2012) have attributed shortage in electricity supply in developing

countries to either poor infrastructures or low income level. Be

that as it may, there are still no consensus on either the magnitude

or direction of effect between both variables. Studies have attrib-

uted this to institutional factors, policies, time considered for the

study, differences in the stages of development and variations in

climate (see Alola, 2019a, 2019b; Ozturk, 2010; Payne, 2010). To a

large extend, environmental and energy policies design depend on

the understanding of this link (Costa-Campi, García-Quevedo, &

Trujillo-Baute, 2018; Mezghani & Haddad, 2017).

The importance of electricity is colossal both to the household

and the business enterprise alike (Alola, Yalçiner, & Alola, 2019;

Atems & Hotaling, 2018; Best & Burke, 2018; Costa-Campi et al.,

2018). Electricity is a factor of production (Stern, Burke, & Bruns,

2017) and a driver of capital formation (Lechthaler, 2017). It has the

capacity to mitigate air p opulation emerging from th e household

(Lim et al., 2012) and increase labor hour (Salmon & Tanguy, 2016).

In spite of these importan ce, access to electricit y still remain a huge

problem. According to the World Bank (2017), in developing coun-

tries, about one billion p eople did not have access to el ectricity in

2014. In the same year, about 40% of Nigerian went without elec-

tricity (Best & Burke, 2018). Many factors are responsible for the

global increase in ele ctricity demand. Chief among them are urbani-

zation, population exp losion, economic growth, entrepreneurial co n-

sideration among other s. Energy demand in the world is expected to

double in 2050.

The federal government of Nigeria have discovered the impor-

tance, especially the backward and forward linkages of electricity in

the economy. As a result, various forms of reforms have been intro-

duced in the sector. Whether these reforms have impacted on eco-

nomic growth is yet to be seen. Also, Nigeria is becoming more

Received: 13 September 2019 Revised: 1 November 2019 Accepted: 21 February 2020

DOI: 10.1002/pa.2102

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https://doi.org/10.1002/pa.2102