The Causality Between Energy Consumption and Economic Growth in Nigeria (1981 – 2009)

This study seeks to determine the direction of causality between energy consumption (EC) and economic growth (EG), using annual data from 1981 to 2009.In our empirical analysis, we run an ordinary least square test to verify the statistical significance of the variables used and augmented form of Granger causality test to identify the direction of the relationship between these variables in the short run.Empirical investigations reveal that two variables are statistically significant at 5% and these variables are gross fixed capital formation and total labour force and they are positively related to real GDP while other variables such as crude oil consumption, coal consumption are positively related to real GDP but not statistically significant.Total electricity consumption on its own exert a negative influence on real GDP and also not statistically significant.Our findings based on Granger causality test suggest the existence of a unidirectional causal relationship between real GDP and crude oil consumption with direction from crude oil consumption.Also, we found out the existence of a uni-directional causal relationship between real GDP and gross fixed capital formation and total labour force with direction from the gross domestic product to the two variables.Meanwhile, causality relationship is virtually inexistence between coal consumption, total electricity consumption and real GDP.Based on our findings, the study therefore recommends that Nigeria government should invest more in energy sector, particularly in crude oil and natural gas and this is because our results shows that crude consumption Granger cause economic growth.