Petroleum Consumption and Economic Growth Nexus in Nigeria: Evidence from Nonlinear ARDL and Causality Approaches

Nigeria is a major oil-producing country but with a low electricity supply; therefore, the country depends mainly on refined petroleum to power economic activities. The paper uses a multi-methodological approach, which includes nonlinear autoregressive distributed lag model, vector error correction modelling, and Hatemi-J causality tests to examine both asymmetric effect and causal relations between petroleum consumption and economic growth in Nigeria over the period 1980–2016. The results provide evidence in support of cointegration and nonlinearity between petroleum consumption and economic growth. Asides, the results show that causality runs only from economic growth to petroleum consumption is provided. This finding supports the conservation hypothesis, meaning that petroleum conservation measures may not necessarily harm economic growth. Instead, the impact of an increase in petroleum consumption on economic growth may be enhanced by the ‘booster-effect’ of petroleum conservation policies. In sum, issues of nonlinearity and asymmetry need to be taken into consideration in the examination of the nexus between petroleum consumption and economic growth.