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Impact of Energy Consumption and Environmental Degradation on Economic Growth in Nigeria

Yusuf, Sulaimon Aremu (2014): Impact of Energy Consumption and Environmental Degradation on Economic Growth in Nigeria.

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Abstract

The argument concerning the contribution of energy towards the growth objective and the adverse environmental impact its consumption brings along are contentious, whether to reduce energy consumption in order to reduce negative externality as it is just an intermediate input which its contribution is insignificant to the accomplishment of growth objective is the curiosity behind this study. The study empirically examined the impact of energy consumption and carbon emission on economic growth in Nigeria between 1981 and 2011. The research takes analytical/quantitative dimension. It is a multivariate study by including in the model two conventional determinants of Economic Growth, Capital proxy by Gross Capital Formation, labour proxy by labour participation rate, and other variables of study which are electricity consumption, energy use kt in oil equivalent and Co2 emission. Restricted Error Correction Model (VAR) is used, Impulse Response function was carried out and the necessary diagnostic tests were examined with the aid of Econometrics View Package (E- view). The study reveals that the long run relationship exists among the variables and electricity contributes significantly to the economic growth. Further investigation using Granger causality analysis to examine the causal directions among the variables reveals bidirectional causality between electricity consumption and economic growth and indicates unidirectional causality running from energy use kt of oil to carbon emission. This brings the study to conclusion that electricity is not just an intermediate input; its contribution to the accomplishment of growth objective cannot be relegated to the background. Hence, Nigeria can pursue triple goals of energy security by exploiting renewable energy source, environmental sustainability and sustainable inclusive growth. Therefore necessary recommendations were made.

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