Energy Consumption and Industrial Production in Nigeria

Abstract

This study investigates the impact of energy consumption on industrial production in Nigeria from 1986 to 2024. Using secondary time-series data on total energy consumption, electricity consumption, petroleum product consumption, and the Industrial Production Index (IPI), the study applies the Johansen cointegration technique and Vector Error Correction Model (VECM) to examine both long-run and short-run dynamics. The results reveal a significant long-run positive relationship between total energy consumption and industrial output, highlighting the critical role of aggregate energy availability in driving industrial growth. Conversely, electricity consumption and petroleum product consumption exhibit significant negative long-run relationships with industrial production, reflecting structural inefficiencies, unreliable power supply, and high operational costs associated with self-generation and petroleum reliance. The short-run analysis identifies a significant error correction mechanism, indicating that industrial output adjusts to restore long-run equilibrium at a moderate annual speed of 15.5%. These findings underscore that while the quantity of energy is important, the efficiency, reliability, and cost of energy supply are decisive factors for industrial performance. The study concludes with recommendations for policy interventions to enhance energy infrastructure, promote alternative energy sources, and improve energy efficiency to foster sustainable industrial growth in Nigeria.