Energy Crises, Stabilization Policies and Economic Performance in Nigeria: An Empirical Investigation

Nigeria’s economic history is coloured with various types of crises and fluctuations in important macroeconomic variables. These include crises in electricity generation and distribution, domestic and external debt crisis, balance of payments disequilibrium and fluctuations in key macroeconomic variables such as broad money supply, exchange rate, real GDP growth rate etc. This paper has attempted to investigate the impact of stabilization policies (monetary and fiscal policies) and electricity supply on economic development in Nigeria using the OLS estimation technique. The time series characteristics of the variables were tested using the Ng and Perron (2001) modified unit root test and the (ARDL) bounds testing approach to cointegration proposed by Pesaran et al (2001). The result of the parsimonious estimates showed that broad money supply, government expenditure and electricity supply were important determinants of per capita GDP growth rate in Nigeria. To test for the importance of electricity supply in the model, we run the regression first without electricity supply and then with electricity supply, the inclusion of electricity supply in the regression significantly improved the diagnostic statistics. The findings of this paper showed that albeit demand management is useful for the purpose of economic stabilization in Nigeria, it is equally important for policy makers to address supply issues, especially electricity supply. This is because as the study shows, electricity supply is important to drive economic growth and development to the desired threshold.