Empirical Analysis of the Impact of Electricity Demand on the Manufacturing Sector Performance in Nigeria

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Adebusuyi, Adebisi T
Obamuyi, Tomola M.
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Hilton New York JFK, Jamaica-Queens, New York
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.
IPPEAN Conference Proceedings
Economic Growth , Manufacturing Sector , Oil Exploration , Energy Supply
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.