Trade openness, hydroelectric power production, foreign direct investment and economic growth nexus in Nigeria

Gold, Ka ilah Lola; T egenna, Fiona
A icle
T ade openness, hyd oelec ic powe p oduc ion, o eign
di ec in es men and economic g ow h nexus in Nige ia
Cogen Economics & Finance
P o ided in Coope a ion wi h:
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Sugges ed Ci a ion: Gold, Ka ilah Lola; T egenna, Fiona (2024) : T ade openness, hyd oelec ic powe
p oduc ion, o eign di ec in es men and economic g ow h nexus in Nige ia, Cogen Economics &
Finance, ISSN 2332-2039, Taylo & F ancis, Abingdon, Vol. 12, Iss. 1, pp. 1-21,
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T ade openness, hyd oelec ic powe p oduc ion,
o eign di ec in es men and economic g ow h
nexus in Nige ia
Kafilah Lola Gold & Fiona T egenna
To ci e his a icle: Kafilah Lola Gold & Fiona T egenna (2024) T ade openness, hyd oelec ic
powe p oduc ion, o eign di ec in es men and economic g ow h nexus in Nige ia, Cogen
Economics & Finance, 12:1, 2426538, DOI: 10.1080/23322039.2024.2426538
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DEVELOPMENT ECONOMICS | RESEARCH ARTICLE
T ade openness, hyd oelec ic powe p oduc ion, o eign di ec
in es men and economic g ow h nexus in Nige ia
Ka ilah Lola Gold
a,b
and Fiona T egenna
a
a
DSI/NRF Sou h A ican Resea ch Chai in Indus ial De elopmen , Uni e si y o Johannesbu g, Johannesbu g, Sou h A ica;
b
Economics Depa men , Kwa a S a e College o Educa ion, Ilo in, Nige ia
ABSTRACT
This s udy examines ade openness, hyd oelec ic powe p oduc ion, and o eign di -
ec in es men (FDI) nexus on economic g ow h in Nige ia. Despi e e o s owa d
ade libe alisa ion, Nige ia’s g ow h emains cons ained due o hea y eliance on oil
and mine als expo s. Fu he mo e, elec ici y p oduc ion challenges exace ba e hese
issues, hinde ing in a-A ican ade, FDI in lows, and o e all economic g ow h. The
s udy explo es how ade openness and insu icien elec ici y p oduc ion a ec s eco-
nomic g ow h in he long un. The annual da a om 1988 o 2022, sou ced om he
Na ional Bu eau o S a is ics, Nige ia, Ou Wo ld in Da a, and he Wo ld Bank
De elopmen Indica o (WDI) da abase was used. The econome ic echniques
employed a e he au o eg essi e dis ibu ed lag (ARDL) o examine long- un and
sho - un dynamics, while he dynamic o dina y leas squa es (DOLS) is used as a
obus ness o add ess po en ial endogenei y and se ial co ela ion conce ns. The ind-
ings indica e ha ade openness posi i ely a ec s long un economic g ow h, as sup-
po ed by DOLS es ima es. Howe e , hyd oelec ic powe p oduc ion and FDI had
mixed e ec s on Nige ia's economic pe o mance. The s udy ecommends p io i ising
in es men s in elec ici y in as uc u e o enhance ade compe i i eness and a ac
FDI. Mo eo e , di e si ying expo s beyond oil and mine als is c ucial o s eng hen
economic esilience and d i e sus ainable de elopmen in Nige ia.
IMPACT STATEMENT
This s udy p o ides c i ical insigh s in o sus ainable economic de elopmen in Nige ia by
examining key ac o s a ec ing i s g ow h. Th ough an in-dep h analysis o ade open-
ness, hyd oelec ic powe p oduc ion, and o eign di ec in es men (FDI), he esea ch
highligh s bo h he d i e s and ba ie s wi hin Nige ia’s economic ajec o y. Findings
show ha ade libe alisa ion, enhanced elec ici y in as uc u e, and a ge ed FDI a e
essen ial o suppo ing long- e m economic expansion. These insigh s align wi h
Nige ia’s goals o economic di e si ica ion and ene gy secu i y. The implica ions o his
s udy a e subs an ial, o e ing policymake s guidance o s a egies ha p omo e bo h
g ow h and inclusi e de elopmen . By unco e ing he in e connec ed e ec s o ade,
ene gy, and in es men policies, his wo k p o ides a amewo k o in o med na ional
and egional economic planning. The esea ch has he po en ial o shape decisions on
esou ce alloca ion, egula o y e o ms, and in es men p io i ies, posi ioning Nige ia
owa ds sus ainable indus ialisa ion and esilien economic ans o ma ion.
ARTICLE HISTORY
Recei ed 6 June 2024
Re ised 25 Oc obe 2024
Accep ed 3 No embe 2024
KEYWORDS
T ade openness;
hyd oelec ic powe
p oduc ion; FDI; economic
g ow h; Nige ia; ARDL;
DOLS
JEL CODES
F14; Q42; F21; O55
SUBJECTS
Economics; Economics and
De elopmen ; De elopmen
Policy
In oduc ion
Nige ia, one o A ica’s la ges economies, subs an ially impac s he egion’s economic pe o mance.
Despi e being ichly endowed wi h abundan oil, mine als, and o he na u al esou ces, Nige ia pa adox-
ically expe iences low economic g ow h. This s agna ion is la gely a ibu ed o a lack o obus manu-
ac u ing and ag icul u al indus ies ha d i e b oade economic expansion. While exchanging goods
and se ices o e s signi ican po en ial bene i s, Nige ia’s non-oil expo pe o mance alls sho
CONTACT Ka ilah Lola Gold [email p o ec ed],[email p o ec ed] DSI/NRF Sou h A ican Resea ch Chai in Indus ial De elopmen ,
Uni e si y o Johannesbu g, Johannesbu g, Sou h A ica
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2426538
h ps://doi.o g/10.1080/23322039.2024.2426538
compa ed o oil-p oducing coun ies such as he UAE, Russia, and Saudi A abia, whe e manu ac u ing
and ag icul u e h i e alongside oil p oduc ion. P e ious esea ch has a ibu ed his unde pe o mance
o se e al ac o s, including o e eliance on oil expo s, insu icien ade openness, ecen bo de clo-
su es and lack o poli ical will o pu sue agg essi e di e si ica ion o non-oil expo s. This s udy, how-
e e , posi s ha e ec i e ade openness is con ingen upon subs an ial imp o emen s in in as uc u e,
pa icula ly elec ici y supply and dis ibu ion, ha will enhance manu ac u ing. The Wo ld Bank (1994)
iden i ies in as uc u e as a key de e minan o manu ac u ing and ag icul u al success.
Consequen ly, his esea ch concen a es on he pi o al ole o ade openness in enhancing a coun y’s
g ow h po en ial, a no ion widely discussed in heo e ical li e a u e on g ow h and ade (Fe ahi-Vehapi
e al., 2015;Islam,2024). Based on his no ion, de eloping na ions, including Nige ia, ha e pu sued expo
p omo ion and openness, pa icula ly du ing he ade libe alisa ion e a, aiming o os e ade, knowledge
exchange, echnology ans e , labou specialisa ion, in es men , imp o ed wel a e, e icien esou ces alloca-
ion, and o e all de elopmen (Gold & Rasiah, 2022). Howe e , he ade openness, economic g ow h impac
is subjec o deba e and lacks conclusi e e idence. Some s udies, like hose by Samimi e al. (2012)and
Cooke (2010), eason ha ade openness will hinde economic g ow h, po en ially leading o pe sis en ly
highe commodi y p ices and lowe exchange a es. Simila ly, Male ane and Odhiambo (2021)andMusila
and Yiheyis (2015) sugges an insigni ican ade openness and economic g ow h nexus. In addi ion, Ogudu
e al. (2023), Rakshi (2022), and Khobai e al. (2018) ind a signi ican ly nega i e impac o ade openness
on economic g ow h. Con a ily, Sunde (2023), Male ane (2020), Ma e al. (2019), and Khobai e al. (2018)
indings indica e a signi ican and posi i e ela ionship be ween ade openness and economic g ow h.
Mo eo e , Esaku (2021), Islam (2021), S iyana and A andi (2020), Islam e al. (2022) and Kong e al. (2021)
iden i y a posi i e co ela ion be ween ade openness and economic g ow h in a ious coun ies.
These s udies sugges ha inc eased in e na ional compe i i eness, p oduc i i y and expo e enue a e
in eg al o economic g ow h and di ec ly and signi ican ly a ec ade openness. Likewise, Keho (2017)and
B ueckne and Lede man (2015) a gue ha ade openness encou ages domes ic i ms o in es and ans e
echnology, he eby inc easing GDP. Howe e , owing o he inc easing ealisa ion o he ac ha Nige ia –
‘ he gian o A ica’(Ozughalu & Ogbue i, 2022, p.37181) con ibu ion o global ma ke s in e ms o manu-
ac u ing is low despi e i s ade libe alisa ion e o ms, excep o i s dominance in oil and mine als expo ,
which accoun o o e 70% o i s o al o eign ea nings (Khobai e al., 2018). This o e eliance on oil and
mine als unde sco es Nige ia’s s uggle wi h challenges and sho ages in elec ici y
1
p oduc ion. These limi a-
ions hinde in a-A ican ade, o eign in es men and impede g ow h, as illus a ed in Figu e 1.
This elec ici y in as uc u e is c ucial o socio-economic ac i i ies ac oss indus ial, manu ac u ing,
ag icul u al, comme cial, esiden ial and anspo a ion sec o s (Yakubu e al., 2015). I is conside ed a
co ne s one o ene gy banks in bo h de eloping and de eloped na ions. Howe e , Nige ia’s un eliable
powe gene a ion and epilep ic powe supply ha e led o nume ous business closu es, p omp ing some
companies o eloca e o coun ies wi h mo e accessible and eliable elec ici y supply (Adenikinju, 2005;
Figu e 1. Nige ia’s GDP and elec ici y p oduc ion compu a ion om Wo ld Bank (2024); S a is ics (2022).
2 K. L. GOLD AND F. TREGENNA
Egbichi e al., 2018; Ozughalu & Ogbue i, 2022). Many indi iduals and i ms in Nige ia also use gene a-
o s o elec ici y, which is cos lie han he na ional powe supply (Kennedy-Da ling e al., 2008;
Musibau e al., 2024). In a iably, he inadequa e elec ici y supply imposes addi ional cos s on p oduc-
ion, leading o in la ion in he p ices o goods and se ices (Adenikinju, 2005; Musibau e al., 2024).
Mo e so, in as uc u e, including elec ici y, cons i u es a signi ican po ion o he o al capi al s ock
(Ca lsson e al., 2013), and o eign in es o s p e e o in es in coun ies wi h cons an , eliable, and su i-
cien elec ici y supply o inc ease p oduc i i y and maximise p o i s. As shown in Figu e 2, Nige ia’s
GDP g ow h allies wi h a dwindling end in FDI. Addi ionally, FDI is c ucial o enhancing he manu ac-
u ing sec o ’s unc ionali y, which impac s expo olume and esou ce e inemen , os e ing g ow h
h ough echnology and knowledge ans e . Undoub edly, i is e iden ha Nige ia equi es o eign cap-
i al in low, pa icula ly in he o m o FDI, pa ly o inance i s elec ici y in as uc u e, which is g ossly
de icien and o enhance ade compe i i eness (Musibau e al., 2024).
Akin o he s udies on openness-economic g ow h, p e ious esea ch on elec ici y-economic g ow h
and FDI-economic g ow h yields mixed esul s. Aydin and Bozda
g(2018), Qazi e al. (2021), Apin an
e al. (2022), Nas een and Anwa (2014), Nchege and Okpalaoka (2023) and Lawal e al. (2020) ind a di -
ec ela ionship be ween elec ici y and economic g ow h, indica ing ha elec ici y is i al o sus ain-
able g ow h and leads o inc eased economic ou pu . Howe e , Egbichi e al. (2018) and Rahman and
Mamun (2016) a gue ha no causal ela ionship exis s be ween ene gy consump ion and g ow h.
Likewise, Ogudu e al. (2023), Qab a i (2021), Al-Ha bi and Shaheen (2021), Musibau e al. (2019); Qazi
e al. (2021), Kuma i e al. (2023) sugges a posi i e impac o FDI on g ow h, whe eas, Musibau e al.
(2024) and T an e al. (2023) ind a nega i e ela ionship. Mo eo e , hese s udies ocus on openness-
elec ici y-g ow h, ene gy (elec ici y)-FDI-g ow h, o FDI-openness-g ow h nexus.
Gi en he abo e, he lacuna s udied he e speci ically is o de e mine he link be ween ade openness, elec-
ici y p oduc ion, and FDI and economic g ow h in Nige ia, as no exis ing li e a u e a guably in es iga es all
ou linkages simul aneously. By doing so, we aim o p o ide policymake s wi h insigh s o c ea ing an en i on-
men conduci e o indus ial de elopmen . The indings a e expec ed o in o m policies ha enhance manu-
ac u ing sec o e iciency and compe i i eness, ul ima ely con ibu ing o a mo e di e si ied and esilien
Nige ian economy. Secondly, his s udy de ia es om he p e ious s udies and uses da a on elec ici y p oduc-
ion ins ead o elec ici y consump ion. The no ion is ha he powe supply om he na ional g id gene a ed
by he go e nmen , which is no supplemen ed by al e na i es om i ms and indi iduals, is bes cap u ed and
be e measu ed wi h elec ici y p oduc ion da a han consump ion. This app oach p o ides a unique pe spec-
i e on he coun y’s ene gy challenges. Fu he mo e, Nige ia’s p ima y ene gy sou ce, hyd oelec ic powe ,
adds signi icance o his choice. Thi dly, u ilising obus econome ic echniques such as ARDL and DOLS o e
an ex ensi e seconda y da a spanning om 1988 o 2022, he s udy o e s comp ehensi e insigh s in o long-
un and sho - un e ec s, which con ibu e o a deepe unde s anding o Nige ia’seconomicg ow hdynamics,
Figu e 2. Nige ia’s GDP and FDI compu a ion om Wo ld Bank (2024).
COGENT ECONOMICS & FINANCE 3

while highligh ing impo an policy implica ions. The s uc u e o he pape is as ollows: he li e a u e, he
me hodology, he esul s and discussion, and he las sec ion con ains he conclusions.
The e iew o ela ed li e a u e
Theo e ical e iew on ade openness, elec ici y, FDI and economic g ow h nexus
Neo-classical economis s a gue ha no na ion is sel -su icien o ca e o all he equi ed esou ces needed o
economic de elopmen . Ins ead, na ions should specialise and concen a e on a eas wi h g ea e ac o endow-
men , s ong echnical capaci y o p oduce expo s a a lowe cos ad an age, bene i om economies o scale
o expand he indus ial base and impo esou ces ha a e ei he sca ce, una ailable o ha e high-cos disad-
an age o accele a e economic g ow h. Fo his eason, achie ing a a ou able ade balance and a posi i e
ade is a mi age o many de eloping na ions lacking abundan esou ces, echnology ha includes labou
and capi al and a low deg ee o openness (Keho, 2017;Khobaie al.,2018;Omoke&Opuala–Cha les, 2021;
S iyana & A andi, 2020). The expo -led g ow h hypo hesis s a es ha inc easing expo s boos s p oduc i i y
and ma ke access, leading o economic g ow h (Gold & Rasiah, 2022;Islam,2021). The hypo hesis ound a sig-
ni ican co ela ion be ween expo le el and economic pe o mance (D ege & He ze , 2013). A c i ical compo-
nen o his p ocess is elec ici y in as uc u e, which is i al o global economic ac i i ies, as i unde pins he
unc ioning o indus ies and se ices wo ldwide. Acco ding o Nu kse (1953) heo y, inadequa e elec ici y
in as uc u e poses a majo obs acle o economic p og ess, pa icula ly in less de eloped na ions. Thus, ensu -
ing a eliable and high-quali y elec ici y supply is pi o al o de e mining a coun y’s success in ade, po e y
alle ia ion, and en i onmen al imp o emen (Es ache, 1994). Fu he mo e, he G ossman and Helpman (1991)
and Rome (1990) endogenous g ow h models, emphasise echnological ad ancemen , inno a ion, and know-
ledge ans e as p ima y ca alys s o economic g ow h. In which FDI ac s as a condui o knowledge dissem-
ina ion, s imula ing employmen , heigh ening g ow h a es, expanding ma ke access, imp o ing ade quali y,
and acili a ing economic in eg a ion and globalisa ion in de eloping na ions (Gold, 2022;T ane al.,2023). In
addi ion, he Solow- ype neoclassical g ow h models indica e ha FDI enhances capi al s ock and uels eco-
nomic g ow h h ough capi al o ma ion (B ems, 1970;Gold,2019). Combined wi h he empi ical indings,
hese heo ies a e he basis o model speci ica ion.
Empi ical e iew
T ade openness - economic g ow h
In coun ies ha open up o ade and expo o o he coun ies, hei domes ic indus ies will p oduce
mo e, which will d i e g ow h (K uege , 1998). Acco ding o Alwa i (2017), low-income na ions wi h
highe ade openness le e age he abundan echnological ad ancemen s om de eloped na ions o
de elop local indus ies and p omo e g ow h. The o me will g ow quicke han he la e . O he
explana ions sugges ha ade openness migh nega i ely a ec g ow h in eme ging and low-income
economies (Gonc¸al es e al., 2021). This al e na i e iew is based on he no ion ha hei s uc u al
a ibu es and ade policies incline o change he e ms o ade a hei disad an ages, pa icula ly o
coun ies specialising in low-quali y p oduc s (Alwa i, 2017). Despi e hese di e ing iews, his s udy
main ains ha ade openness and economic g ow h posi i ely a ec s each o he in de eloping coun-
ies, including Nige ia, as summa ised in Table 1.
Elec ici y P oduc ion - Economic g ow h
Samli (2010)andMusibaue al.(2024) s ess he c i ical ole o elec ici y in na ional g ow h and de elopmen .
The de elopmen o elec ici y in as uc u e yields se e al bene i s, including inc eased manu ac u ing ou pu ,
expanded ade oppo uni ies, job c ea ion, and imp o ed li ing s anda ds. Howe e , Nige ia’ssi ua ion
p esen s a s a k con as . Despi e subs an ial go e nmen in es men s and incen i es in he elec ici y sec o ,
adequa e elec ici y supply emains challenging. The p oduc ion-consump ion gap is signi ican , exempli ied by
Nige ia’s need o 40,000MW o elec ici y in 2020, while only 7,500MW was supplied. Mo eo e , access o elec-
ici y is une enly dis ibu ed, wi h only 55% o u ban dwelle s ha ing access, while u al a eas ace g ea e chal-
lenges, wi h jus 36% ha ing access. App oxima ely 40% o Nige ia’s o e 210 million popula ion lack elec ici y
access (Apin an e al., 2022;Egbichie al.,2018). Ce ainly, Table 2 p esen s addi ional s udies examining
4 K. L. GOLD AND F. TREGENNA
Table 1. Empi ical e iew summa y o ade openness - economic g ow h.
Sou ce Sample / Du a ion Va iables Es ima ion Technique/ Model Main indings
T ipa hi (2023) G20 de eloped coun ies
(2004-2019)
T ade openness ( ade sha e o GDP) Simul aneous equa ions and dynamic
policy simula ion models
T ade openness-GDP (co ela e posi i ely). Dynamic policy
simula ions: Policies o inc ease expo s, educe in la ion,
and FDI need o be s onge and mo e p ac ical o
enhance pe capi a g ow h.
Sunde e al. (2023) Namibia (1990-2020) T ade openness ( ade % GDP) Au o eg essi e dis ibu ed lag (ARDL) T ade openness-expo s-GDP (posi i e); Impo s-GDP
(nega i e); Openness-expo s-impo s ¼g ow h in sho un.
Esaku (2021) Uganda (1983-2019) T ade openness ARDL Expo indices p oxy ¼insigni ican . Openness and impo s
indexes ¼signi ican ly posi i e in long un.
Omoke and Opuala–
Cha les (2021)
Nige ia (1984-2017) To al ade, impo ade, and expo
ade ( ade openness)
ARDL T ade openness-economic g ow h (expo ade ¼signi ican ly
posi i e in he long un; impo ade ¼signi ican ly
nega i e in he long un. Good go e nance inc eases
economic g ow h.
Nwadike e al. (2020) Nige ia (1970-2011) T ade openness ( ade di ided
by GDP)
ADF and o dina y leas squa ed (OLS) T ade openness-GDP (signi ican ly posi i e impac ); GDP and
exchange a e espond o he shock o ade openness.
Udeagha and Ngepah
(2021)
Sou h A ica (1960-2016) T ade openness ( ade % GDP; ( ade
size % global ade)
Nonlinea ARDL T ade openness-economic g ow h (long and sho - un
asymme ic e ec s).
Islam (2021) Saudi A abia
(1985-2019
T ade, G oss ixed capi al o ma ion
(GFCF) and labou
ARDL; Toda-Yamamo o G ange
causali y es
T ade openness and labou ha e posi i ely signi ican on GDP
in he sho and long un; GFCF has no signi icance impac
on GDP in all es ima es.
Male ane and Odhiambo
(2021)
Leso ho (1979-2013) T ade openness index; 3 ade-based
p oxies
ARDL T ade openness-economic g ow h (no signi ican impac in
he long un and sho un).
Male ane (2020) Bo swana (1975-2014) T ade openness ARDL Impo s/GDP a io p oxy (no signi ican ). T ade/GDP a io,
expo s/GDP a io, and ade openness index p oxies
(signi ican ly posi i e).
Iji sha (2019) ECOWAS (1975-2017) T ade openness ( ade % GDP) Pooled mean g oup (PMG) T ade openness-economic g ow h (long- un ¼posi i e impac ;
sho - un ¼mixed e ec ).
Khobai e al. (2018) Ghana and Nige ia (1980-
2016)
T ade (impo s þexpo s) ARDL; Augmen s Dickey-Fulle ; DF-GLS T ade openness-GDP in Ghana (posi i e long un/sho un).
T ade openness-GDP in Nige ia (nega i e-long un; posi i e-
sho un).
Keho (2017) Co e d’I oi e (1965-2014) T ade openness ( eal ade pe
capi a)
ARDL; G ange causali y app oaches Openness-g ow h (posi i e). Openness-capi al o ma ion-
g ow h (posi i e/complemen a y).
COGENT ECONOMICS & FINANCE 5
Table 2. Empi ical e iew summa y o elec ici y p oduc ion - economic g ow h.
Sou ce Sample / Du a ion Va iables Es ima ion Technique/ Model Main indings
Nchege and Okpalaoka
(2023)
Nige ia (1981-2018) Elec ici y P oduc ion;
elec ic powe
consump ion
ARDL Hyd oelec ic powe p oduc ion and GDP ¼nega i e long- e m e ec ;
Elec ic powe consump ion and GDP ¼posi i e. GDP ises (1.3%) as
hyd oelec ic powe is used o elec ici y p oduc ion.
Apin an e al. (2022) Nige ia (1981-2019) Elec ici y
consump ion (kwH)
ARDL and no el dynamic
ARDL
Elec ici y consump ion, labou , and capi al ¼posi i e impac s on
g ow h; Ca bon emissions ¼signi ican ly nega i e impac on g ow h.
Ozughalu and Ogbue i
(2022)
Nige ia (1970-2018) Elec ici y
consump ion; FDI
ARDL, G ange causali y and
ec o e o model
Elec ici y o GDP pe capi a ¼neu al causali y/sho un; unidi ec ional
causali y/long un. FDI o elec ici y ¼unidi ec ional causali y bo h;
FDI o GDP pe capi a ¼neu al causali y in bo h.
Qazi e al. (2021) Pakis an (1971-2017) Elec ici y consump ion ARDL Elec ici y consump ion and GDP ¼a signi ican ly posi i e long- un
ela ionship.
Lawal e al. (2020) SSA (1971-2017) Elec ic powe
consump ion
GMM es ima ion echniques A posi i e and signi ican ela ionship be ween elec ici y consump ion
and economic g ow h.
Egbichi e al. (2018) Nige ia (1986-2016) Elec ic powe
consump ion
Symme ical ARDL app oach Elec ici y consump ion-g ow h ¼No signi ican impac
Wada (2017) Nige ia (1971-2013) Ene gy p oduc ion ARDL and G ange causali y The e is no signi ican long- un in eg a ion be ween he a iables
examined in he model.
6 K. L. GOLD AND F. TREGENNA
elec ici y’s impac on economic g ow h and o he economic a iables. These s udies con ibu e o unde s and-
ing how elec ici y in as uc u e in luences economic de elopmen and ade dynamics.
Fo eign di ec in es men - economic g ow h
Acco ding o Kuma i e al. (2023), Alwa i (2017) and Ogudu e al. (2023), ac o s in luencing he in lows
o FDI include he hos coun y’s economic and poli ical en i onmen , inno a ion, echnological de elop-
men , exchange a es, in as uc u e, and ade openness. K ugman and Obs eld (2000) and Alwa i
(2017) s a ed ha wi h FDI, capi al lows om mul ina ionals in de eloped coun ies o es ablish subsid-
ia ies o acqui e con olling in e es s in hos ma ke s, ca alysing economic de elopmen h ough capi al
accumula ion and p ojec inancing in he hos and home coun ies. Howe e , wi h i s eno mous na u al
and human esou ces, Nige ia lacks capi al accumula ion p ima ily due o insu icien domes ic sa ings,
exchange a e ola ili y and in as uc u al de ici s (elec ici y, oad, e c). This sho age in elec ici y sup-
ply pa icula ly es ic s businesses and discou ages he in low o FDI in c i ical sec o s whe e eliable
elec ici y in as uc u e is equi ed (Musibau e al., 2024; Musibau e al., 2019; Ogudu e al., 2023).
Hence, FDI is pi o al in d i ing economic g ow h, especially in de eloping coun ies, Nige ia inclusi e, as
shown in he summa y o he e iew in Table 3.
The s udy add esses a c i ical gap in he exis ing li e a u e by analysing he in ica e ela ionships
be ween ade openness, hyd oelec ic powe p oduc ion, FDI, and economic g ow h in Nige ia. Unlike
p e ious esea ch, which o en ocused on indi idual ac o s o b oade economic ends, his s udy
examines how hese elemen s shape Nige ia’s economic landscape. The esea ch also highligh s he
impo ance o in as uc u e, pa icula ly elec ici y supply, in acili a ing ade and indus ial ac i i ies,
he eby con ibu ing o a mo e comp ehensi e unde s anding o he coun y’s economic challenges and
oppo uni ies.
Resea ch me hodology
Da a sou ce and a iables desc ip ions
The s udy uses da a wi h yea ly obse a ions a he coun y le el, ob ained om he WDI da abase, sup-
plemen ed by elec ici y gene a ion da a om he Na ional Bu eau o S a is ics, Nige ia, and Ou Wo ld in
Da a. The a ailable da ase s co e om 1988 o 2022. I measu es ade openness, elec ici y p oduc ion,
and FDI’s impac on economic g ow h in Nige ia. The key a iables o he s udy a e g ouped in o depend-
en , independen , and con olled a iables. Economic g ow h is he dependen a iable; i measu es he
GDP g ow h o a coun y (annual %). GDP g ow h e ec i ely cap u es dynamic economic ela ionships,
o e s be e s a is ical p ope ies (such as imp o ed s a iona i y and educed he e oscedas ici y), and aligns
mo e closely wi h g ow h heo ies (Du amany-Lakkoh e al., 2022;Julius,2018). T ade openness measu es
he sum o impo s and expo s as a % sha e o a coun y’s GDP (T ipa hi, 2023); Elec ici y p oduc ion
measu ed in megawa s (MW), is he ene gy de i ed om hyd oelec ic powe (Nchege & Okpalaoka,
2023); and FDI is he ne in low om o eign in es o s’economy o he hos economy in he pe cen age
o GDP (Gold, 2022) a e independen a iables. The con olled a iables a e ixed capi al o ma ion, meas-
u ed as he ne change in a na ion’s physical capi al s ock, calcula ed as in es men minus disposals o
asse s o e a de ined pe iod (Al-Ha bi & Shaheen, 2021; Islam & Alhamad, 2023), o al labou o ce, and
bank c edi o p i a e in es o s, measu ed in US$ (Adeusi & Oke, 2013).
Model speci ica ion and es ima ion echniques
In line wi h he heo e ical and empi ical e iews which jus i y he ela ionships and he ap io expec a-
ions be ween g oss domes ic p oduc g ow h (GDPG), ade openness (TOP), elec ici y p oduc ion
(EPP), o eign di ec in es men (FDI), ixed capi al o ma ion (FCF), o al labou o ce (LBR) and bank
c edi o p i a e in es o s (DCPSBB) in Nige ia, he s udy modi ied he models o Male ane and
Odhiambo (2021), Egbichi e al. (2018) and Sunde (2023); and employ au o eg essi e dis ibu ed lag
(ARDL) bounds model by Pesa an and Shin (1995) and Pesa an e al. (2001) and dynamic o dina y leas
squa es (DOLS) by Engle and Yoo (1989) o analyse he speci ied Eqs. (3) and (4). The bene i o he
COGENT ECONOMICS & FINANCE 7
Leone and Onwioduoki and O’Neill (2023) on Nige ia, which posi ha e icien alloca ion o c edi os e s
long- e m economic g ow h by acili a ing in es men in p oduc i e sec o s.
The esul s gene ally indica e ha ade openness is in luen ial in p omo ing economic g ow h in
Nige ia only in he long e m; elec ici y p oduc ion is in luen ial in p omo ing economic g ow h only in
he long e m; FDI is de imen al o economic g ow h bo h in he sho and long uns; The explana o y
a iables DCPSBB enhances economic g ow h only in he long e m; capi al o ma ion is weakly
de imen al o economic g ow h in he long un; while labou o ce is no po en in p omo ing Nige ia’s
economic de elopmen bo h in he sho and long e ms. Mo eo e , he model also i s well wi h
R-squa ed and adjus ed R-squa ed alues o 0.742 and 0.542, espec i ely, and has an F-s a is ic alue o
3.71 wi h a p- alue o 0.005.
Discussion o ARDL esul s
The TOP and economic g ow h esul s a e pa icula ly impo an gi en ha Nige ia is one o A ica’s
la ges economies, wi h c ude oil expo s making up 70% o i s o al expo s (Khobai e al., 2018). T ade
openness esul s con i m he a p io expec a ions ha openness acili a es ma ke libe alisa ion and p o-
ides c ucial access o in e na ional ma ke s, which is essen ial o Nige ia’s economic expansion (D ege
& He ze , 2013; Islam & Alhamad, 2023). The posi i e ela ionship be ween ade openness and economic
g ow h sugges s ha os e ing an open ade en i onmen can lead o echnological ad ancemen s and
imp o e esou ce alloca ion e iciency (Omoke & Opuala–Cha les, 2021; S iyana & A andi, 2020). As
Nige ia con inues in eg a ing in o he global economy, enhancing ade openness will be key o sus ain-
ing i s economic g ow h and compe i i e edge in he in e na ional ma ke .
The sho - un indings indica e ha insu icien elec ici y p oduc ion p o oundly impac s GDP g ow h
and hinde s Nige ia’s o e all de elopmen . This si ua ion is pa icula ly conce ning gi en he coun y’s poo
s a e o elec ici y gene a ion. Due o he un eliable supply om he na ional g id, many indi iduals and
businesses ha e been o ced o ely on hei gene a o s o powe . This al e na i e is conside ably mo e
expensi e han he elec ici y p o ided by he na ional g id, leading o highe p oduc ion cos s and, conse-
quen ly, inc eased p ices o goods and se ices. The economic epe cussions o his ene gy c isis a e
a - eaching. O e 800 companies ha e eloca ed om Nige ia o coun ies wi h mo e eliable elec ici y
supplies, and nume ous o he s ha e shu down (Adenikinju, 2005;Egbichie al.,2018). This exodus and
closu e o businesses highligh he c i ical need o a s able and su icien elec ici y supply o main ain eco-
nomic ac i i ies and suppo g ow h. The epo unde sco es he se e i y o he issue by e ealing ha
Nige ia equi es 40,000 megawa s o elec ici y o mee i s demands, ye he coun y cu en ly only sup-
plies 4,600 megawa s. This massi e sho all se e ely holds back he ope a ions o manu ac u ing compa-
nies, which equi e a ound 2,500 megawa s bu only ha e access o 267 megawa s (Apin an e al., 2022;
Musibau e al., 2024; S a is ics, 2022). The inadequa e elec ici y supply leads o a signi ican dec ease in
he p oduc ion o goods, nega i ely impac ing ade and esul ing in s un ed economic g ow h.
Conside ing hese challenges, immedia e and e ec i e policy in e en ions a e equi ed o add ess he
sho all in elec ici y supply. These policies should ocus on imp o ing he in as uc u e o elec ici y gen-
e a ion and dis ibu ion, encou aging in es men s in enewable ene gy sou ces, and enhancing he e i-
ciency o exis ing powe plan s. By add essing hese c i ical elec ici y issues, Nige ia can c ea e a mo e
conduci e en i onmen o economic g ow h, a ac and e ain businesses, and imp o e he li ing s and-
a ds o i s popula ion.
FDI is de imen al o Nige ia’s economic g ow h. FDI signi ican ly and nega i ely a ec s economic g ow h
in all he es ima es. These include he nega i e in low o ex e nal esou ces, which a e c ucial o inancing
de elopmen p ojec s, c ea ing employmen oppo uni ies, and acili a ing echnology ans e (G ossman &
Helpman, 1991;Rome ,1990). Fo eign in es o s a e pa icula ly in e es ed in in es ing in Nige ia’s elec ici y
supply o ensu e access o adequa e and eliable powe , essen ial o inc easing p oduc i i y and os e ing
economic g ow h. The ole o elec ici y in economic de elopmen canno be o e s a ed. A eliable elec i-
ci y supply enhances p oduc i i y, boos ing economic ac i i ies and g ow h. As p oduc i i y inc eases, i
encou ages ade openness, opening new ma ke s and os e ing in e na ional ade ela ions (Musibau
e al., 2024;Ogudue al.,2023). This in e connec edness bene i s Nige ia by educing ade ba ie s and
in eg a ing i s economy wi h global ma ke s. The s udy’s indings on he ela ionship be ween explana o y
14 K. L. GOLD AND F. TREGENNA

a iable DCPSBB and GDP g ow h has a nuanced impac on Nige ia’s g ow h. The cu en p o ision o
c edi o he p i a e sec o may no suppo immedia e economic expansion, likely due o ine iciencies in
he inancial sec o , high in e es a es, o inadequa e access o c edi o p oduc i e in es men s. The insig-
ni ican impac o bank c edi on he p i a e sec o in he sho e m could be a ibu ed o ac o s such as
high le els o non-pe o ming loans, s ingen lending condi ions, o a lack o a o dable c edi o small
and medium-sized en e p ises (SMEs) (Adeusi & Oke, 2013;Amooe al.,2017). Howe e , in he long un,
he posi i e and signi ican coe icien indica es ha imp o emen s in c edi p o ision o e ime con ibu e
o sus ained economic g ow h (Du amany-Lakkoh e al., 2022; Onwioduoki & O’Neill, 2023). To add ess
hese sho - e m issues, policymake s should ocus on enhancing he e iciency o he inancial sec o and
implemen egula o y e o ms o add ess he a ibu ed ac o s.
The capi al o ma ion and he labou o ce ei he con ibu ed nega i ely o do no signi ican ly con ib-
u e o Nige ia’s GDP g ow h in he sho and long e m. This sugges s ha ac o s adi ionally linked o
economic g ow h, like in as uc u e in es men s and wo k o ce size, a e unde pe o ming in Nige ia.
Se e al po en ial capi als a e unde u ilised (in es men s bypassing p oduc i e a eas, exis ing in as uc u e
like elec ici y unde u ilised), echnological s agna ion limi ing he impac o capi al in es men s, a skills
gap be ween he wo k o ce and job demands due o he educa ion sys em no equipping wo ke s wi h
he igh skills and s uc u al bo lenecks like bu eauc acy o lack o compe i ion hinde ing o e all e i-
ciency. To add ess hese challenges, a mul i-p onged app oach is c ucial. Fi s , boos ing capi al u ilisa ion is
essen ial. This means p omo ing echnological ad ancemen and inno a ion h ough esea ch and de elop-
men incen i es. Second, os e ing pa ne ships be ween businesses and educa ional ins i u ions can b idge
he skills gap. Thi d, in es men s in mode n in as uc u e ha suppo s high- ech indus ies a e i al. The
labou ma ke also needs an e iciency upg ade. Re o ming he educa ion sys em o ocus on skills ele an
o mode n indus ies is c i ical, including upda ing cu icula, expanding oca ional aining p og ams, and
p omo ing li elong lea ning oppo uni ies. In addi ion, inc easing job c ea ion by suppo ing en ep eneu -
ship and emo ing ba ie s o business de elopmen is c ucial. The solu ion lies no in isola ed ixes bu in
a comp ehensi e policy app oach ha conside s inancial sec o e iciency ( educing non-pe o ming loans,
os e ing compe i ion among banks, and p o iding a o dable c edi ) and coo dina ed e o s among go -
e nmen , p i a e sec o playe s, and in e na ional pa ne s o add ess hese mul i ace ed challenges.
Diagnos ic s a is ics
To e i y he alidi y and obus ness o he eg ession esul s, his s udy ollows Yusu e al. (2023) and
Islam e al. (2022) and ca ied ou some diagnos ic es s. These included he he e oskedas ici y, se ial
co ela ion, no mali y, and s abili y es s epo ed in Table 9. Using he B eusch-Pagan-God ey he e o-
skedas ici y es p ocedu e, he s udy es ablished ha a he e oskedas ici y p oblem is absen in he
esul , wi h an F-s a is ic o 0.712 and p- alue o 0.737, which means ha he s a is ic is insigni ican and
he es ’s Ho o homoskedas ici y is accep ed. The e o e, he esiduals o he model ha e an equal
sp ead. Employing he B eusch-God ey se ial co ela ion es p ocedu e es ablished ha he eg ession
esul is ee om se ial co ela ion p oblem gi en ha he F-s a is ic has a alue o 3.027 and a p- alue
o 0.076, which signi ies ha he es is insigni ican (a 5%). I s Ho o no se ial co ela ion is accep ed.
Also, he Ja que-Be a no mali y es s a is ic alue o 0.361 and i s p- alue o 0.834 indica e ha he no -
mali y s a is ic is insigni ican , and i s Ho o esidual no mali y is no ejec ed; hence, he model esiduals
Table 9. diagnos ic Tes s.
B eusch-Pagan-God ey He e oskedas ici y Tes
F-s a is ic 0.712
p- alue 0.737
B eusch-God ey Se ial Co ela ion LM Tes
F-s a is ic 3.027
p- alue 0.076
Ja que-Be a No mali y es
S a 0.361
p- alue 0.834
Ramsey’s RESET S abili y es
F-s a is ic 0.104
p- alue 0.751
COGENT ECONOMICS & FINANCE 15
a e no mally dis ibu ed. Ramsey’s RESET es was used o e i y he s abili y o he model speci ica ion.
I s F-s a is ic alue o 0.104 and p- alue o 0.751 signi y co ec ly speci ying he model.
Fu he mo e, he ecu si e esiduals (CUSUM and CUSUM o Squa es) me hods we e used o examine
he s abili y o he model (Pesa an & Pesa an, 1997). F om he CUSUM and CUSUM o squa es plo s in
Figu e 4, i was es ablished ha he model is s able. The CUSUM plo is shown o no di e ge signi i-
can ly om i s ze o-mean alue, e i ying he s abili y o he model. This is suppo ed by he plo no
alling ou side he wo ed lines ep esen ing he 5% signi icance le el. Simila ly, he CUSUM o he
squa es plo is loca ed wi hin he ed lines o all he pe iods conside ed, u he bu essing he s abili y
o he model. O e all, all he diagnos ic es s indica e ha he es ima ed model is alid o explaining
he ac o s ha de e mine economic g ow h, as shown in he esul .
DOLS es ima es
To alida e he consis ency o he indings, he Engle and Yoo (1989) dynamic o dina y leas squa es
(DOLS) echnique was employed as an al e na i e es ima ion me hod. This app oach is pa icula ly use ul
in add essing po en ial endogenei y and se ial co ela ion issues, p o iding mo e eliable long- un es i-
ma es. The esul s, as p esen ed in Table 10, indica e ha ade openness (TOP) and elec ici y p oduc ion
(EPP) con inue o exhibi a posi i e and s a is ically signi ican in luence on Nige ia’s economic g ow h,
hus ein o cing he ini ial ARDL indings. These obus ou comes sugges ha p omo ing ade libe alisa-
ion and enhancing elec ici y in as uc u e should emain cen al o Nige ia’s g ow h s a egy. Fo eign
di ec in es men (FDI), on he o he hand, s ill shows a nega i e coe icien in he DOLS model, bu i is
no longe s a is ically signi ican . This sugges s ha while FDI may no di ec ly enhance economic g ow h,
he nega i e impac obse ed in he ARDL model may be mo e nuanced, possibly in luenced by ins i u-
ional weaknesses o misalignmen wi h g ow h-o ien ed sec o s. This inding unde lines he need o
e o ms aimed a imp o ing he e ec i eness o FDI in con ibu ing o long- e m de elopmen .
Fu he mo e, he nega i e in luence o capi al o ma ion (GFCF) is con i med in he obus ness ana-
lysis, which poin s o ine iciencies in how capi al is being u ilised in he Nige ian economy. Labou o ce
Figu e 4. CUSUM and CUSUM o squa es plo s.
Table 10. Robus ness es ima e wi h dynamic OLS.
Va iable Coe icien S d. E o P ob
TOP 0.286 0.060 4.747 0.002
EPP 0.984 0.110 8.893 0.000
FDI −1.177 1.033 −1.139 0.291
GFCF −0.218 0.092 −2.357 0.050
LNLBR 10.964.687 2.340 0.051
DCPSBB 1.030 0.388 2.652 0.032
C−212.8 84.27 −2.525 0.039
Obs. 33
R-squa ed 0.964
Adj. R-squa ed 0.842
No e. ,, and signi y signi icance a 1%, 5%, and 10%.
16 K. L. GOLD AND F. TREGENNA
pa icipa ion (LNLBR) was ound o be signi ican ly posi i e (10.96, p <0.1), only in he DOLS obus ness
es ima ion, indica ing ha inc eases in he labou o ce can enhance GDP g ow h in Nige ia. The
dynamic s uc u e o he DOLS model is pa icula ly e ec i e in cap u ing long- e m ela ionships
and mi iga ing sho - e m luc ua ions, which may explain why he e ec o labou is mo e p o-
nounced in his me hod compa ed o he ARDL. This esul sugges s ha , in he long un, a g ow-
ing labou o ce, combined wi h app op ia e economic condi ions, could signi ican ly con ibu e o
economic expansion. The inding is consis en wi h Islam (2021) and Islam e al. (2022) long- un
ARDL esul s on Saudi A abia. I also aligns wi h Neo-classical and labou -led g ow h heo ies
(Khobai e al., 2018; Omoke & Opuala–Cha les, 2021), which emphasise he impo ance o human
capi al in d i ing p oduc i i y and os e ing u u e g ow h. In con as , he posi i e impac o bank
c edi (DCPSBB) on economic g ow h emains obus ac oss es ima ion echniques, highligh ing he
impo ance o inancial sec o de elopmen in d i ing g ow h. O e all, he DOLS obus ness analysis
solidi ies he policy implica ions o he s udy, pa icula ly he signi icance o ade openness and
elec ici y p oduc ion in os e ing sus ainable economic g ow h. These indings sugges ha policy
e o s should ocus on imp o ing ade condi ions and add essing elec ici y gene a ion challenges
o s imula e long- e m g ow h.
Conclusion and policy ecommenda ions
This s udy in es iga es he impac o ade openness, hyd oelec ic powe p oduc ion, and FDI on
Nige ia’s economic g ow h om 1988 o 2022, using he ARDL bounds model and DOLS o assess bo h
long- e m and sho - e m ela ionships. The indings con i m ha ade openness posi i ely in luences
Nige ia’s economic g ow h in bo h he long un and he DOLS es ima es. In con as , elec ici y p oduc-
ion has a no ably posi i e e ec on long- e m g ow h and in DOLS bu shows a nega i e and insigni i-
can impac on GDP g ow h in he ARDL sho - e m es ima e. Nige ia’s elec ici y in as uc u e
cha ac e is ics migh ha e con ibu ed o he mixed esul . FDI, while signi ican in bo h he sho and
long- un ARDL es ima es, consis en ly exhibi s a nega i e ela ionship wi h economic g ow h. This sug-
ges s ha FDI is no con ibu ing e ec i ely o he coun y’s g ow h, po en ially due o ine icien
esou ce alloca ion, ins i u ional weaknesses, o inadequa e in as uc u e. These indings unde line he
impo ance o c ea ing policies ha add ess hese s uc u al challenges o be e le e age FDI o eco-
nomic de elopmen . The s udy also inco po a es con ol a iables such as capi al o ma ion, labou , and
bank c edi o p i a e sec o s o ensu e obus ness. These a iables p o ide addi ional insigh s in o he
d i e s o g ow h beyond he baseline a iables.
Hence, he ollowing ecommenda ions a e p oposed based on he indings o his s udy: Fi s ly, o
enhance in e na ional ade and economic g ow h, he go e nmen should p io i ise elimina ing ade
ba ie s like a i s and quo as. In addi ion, policymake s and s akeholde s should ocus on simpli ying
cus oms p ocedu es, imp o e logis ics, and ensu e a s able economic en i onmen o smoo he ade
ela ions wi h o he coun ies. As enhancing ade compe i i eness is essen ial o boos ing g ow h and
in eg a ion in o global ma ke s. Secondly, he go e nmen mus ocus on a wo-pa plan o gua an ee
a consis en , eliable and e icien elec ici y supply. This in ol es epai ing and upg ading aul y hyd o-
elec ic powe in as uc u e and in es ing in mode n echnologies o expand and imp o e he na ional
g id. Elec ici y is he p ima y ene gy sou ce enabling mass p oduc ion and is essen ial o expo s and
domes ic consump ion. Thi dly, he go e nmen should c ea e a conduci e en i onmen o o eign
in es o s, pa icula ly in Nige ia’s elec ici y sec o , as ex e nal esou ces a e equi ed o implemen i s
p ojec s. Ex e nal esou ces a e c ucial o de elopmen and economic g ow h, p o iding capi al, ech-
nology, and expe ise essen ial o p og ess. By a ac ing FDI, a coun y can access he necessa y ools
o enhance i s elec ici y in as uc u e, suppo indus ial g ow h, and d i e o e all de elopmen .
Las ly, while his s udy ocuses on ade openness, elec ici y p oduc ion, and FDI, i excludes o he
po en ially in luen ial ac o s like ins i u ional quali y, en i onmen al ac o s, echnological ad ance-
men s, and he sec o al impac s o elec ici y and o eign in es men . Fu u e esea ch could explo e he
limi a ions o p o ide a mo e nuanced iew o Nige ia’s economic g ow h o p ac ical policy
ecommenda ions.
COGENT ECONOMICS & FINANCE 17
No e
1. Fo a de ailed discussion on ene gy use in Nige ia, see Musibau e al. (802024).
Disclosu e s a emen
No po en ial con lic o in e es was epo ed by he au ho (s).
Au ho ’s con ibu ions
Au ho con ibu ions: Concep ualiza ion, GKL and FT; me hodology, GKL; o mal analysis, GKL; da a cu a ion, GKL;
w i ing—o iginal d a p epa a ion, GKL; w i ing— e iew and edi ing, GKL and FT; supe ision, FT; p ojec adminis-
a ion, FT. All au ho s ha e ead and ag eed o he published e sion o he manusc ip .
Abou he au ho s
Ka ilah Lola Gold is a Pos doc o al Resea ch Fellow wi h he DSI/NRF Sou h A ican Resea ch Chai in Indus ial
De elopmen a he Uni e si y o Johannesbu g, Sou h A ica, and a Lec u e in he Economics Depa men a
Kwa a S a e College o Educa ion, Ilo in, Nige ia. She ob ained he Ph.D. in In e na ional Economics om Uni e si i
Malaya, Malaysia.
Fiona T egenna is a P o esso o Economics and holds he DSI/NRF Sou h A ican Resea ch Chai in Indus ial
De elopmen a he Uni e si y o Johannesbu g, Johannesbu g, Sou h A ica. She ea ned he Ph.D. in Economics
om he Uni e si y o Camb idge. He esea ch ocuses on s uc u al change, indus ializa ion and deindus ializa-
ion, inno a ion, and echnological upg ading.
ORCID
Ka ilah Lola Gold h p://o cid.o g/0000-0002-0018-2153
Fiona T egenna h p://o cid.o g/0000-0001-5584-5842
Da a a ailabili y s a emen
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