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Response of Total Factor Productivity to Energy Use in Nigeria

Response of Total Factor Productivity to Energy Use in Nigeria


Abstract: This paper empirically examines the response of total factor productivity to energy use in Nigeria. The lack of access to substantial energy which has resulted in low productivity is the motivation behind this study. To carry out the empirical study, data was collected from CBN Statistical Bulletin and the World Bank data catalogue on energy consumption, labour, capital and economic growth from 1980 – 2015. Total factor productivity (TFP) was measured as the Solow residual, which is the constant in the Cobb-Douglas production equation. A VAR model was specified from which the impulse response function (IRF) and variance decomposition were computed to determine the response of TFP on energy use. The IRF shows that TFP responds positively to energy use. Furthermore, the Granger causality test was conducted and the test indicated a one-directional (one way) causality between energy use and total factor productivity, indicating that energy augments productivity in Nigeria. Finally, it is suggested that there is a need for policy cohesion and coordination on the management of energy generation and usage in Nigeria.

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