Empirical Analysis of the Impact of Electricity Demand on the Manufacturing Sector Performance in Nigeria
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Date
2016-08
Authors
Adebusuyi, Adebisi T
Obamuyi, Tomola M.
Journal Title
Journal ISSN
Volume Title
Publisher
Hilton New York JFK, Jamaica-Queens, New York
Abstract
The critical role of the manufacturing sector in
economic growth is evident in the sector's
contribution to the Gross Domestic Product (GDP).
The manufacturing value added as a percentage of
GDP in Nigeria declined from 10% (1981) to 4%
(2000) and on average, 820 manufacturing firms
closed down or suspended production in Nigeria
between 2000 and 2008. The aftermath of this
development is the increased cost of production and
high rate of unemployment. This study analyzed the
impact of electricity demand on the performance of
manufacturing sector in Nigeria. The theoretical
underpinning employed was premised on the
microeconomic foundation of demand for energy as a
derived demand in the theory of production. The
methodology combined two separate models. First,
bounds testing approach to cointegration within an
Autoregressive Distributed lags (ARDL) framework
was examined. Second, the translog model focused
on the relative contribution and substitutability of
electricity and non-electricity factor inputs. The
Ordinary Least Squares (OLS) technique was theestimation procedure adopted. The data covering
between 1970 and 2014 were sourced from the
Central Bank Nigeria Statistical bulletin and Annual
Abstract of Statistics. All analyses were examined at
5% level of significance. The bound test results show
that, for each unit change (decrease) in
manufacturing electricity demand, the manufacturing
output changes (decreases) by 26.2%. The goodnessof-
fit for the short-run ARDL model was
approximately 72%. Finally, electricity was found to
be a weak substitute for both capital and labour from
the translog model. The marginal rate of technical
substitution of capital for electricity shows limited
substitutability; Labor for electricity indicated strict
complementarities. The post estimation diagnostic
tests statistics ascertain the stability and reliability of
the parameter estimates. The paper concluded that
electricity is a necessary factor input in
manufacturing production input mix and output
growth has strong impact on future electricity
demand. Therefore, policymakers need to plan and
match manufacturing electricity demand with the
pace of industrial expansion.
Description
IPPEAN Conference Proceedings
Keywords
Economic Growth , Manufacturing Sector , Oil Exploration , Energy Supply
Citation
Adebusuyi, A. T. , Obamuyi, T. M. (2016). Empirical Analysis of the Impact of Electricity Demand on the Manufacturing Sector Performance in Nigeria. New York: IPPEAN.