Growth Implications of Energy Use in Nigeria: Evidence from the Service Sector

Energy plays a vital role in fostering economic growth and development, especially in developing economies such as Nigeria, where the demand for services is rising. Being one of Africa’s largest economies, Nigeria has experienced considerable growth in its service sector, which now accounts for more than half of the nation’s Gross Domestic Product (GDP). This study investigates the link between Nigeria's energy use and service sector growth. The time series data for each of the variables were obtained from secondary sources including the World Bank, International Energy Agency (IEA) and Organisation of Economic Cooperation and Development (OECD) National Data Accounts. This study utilized descriptive statistics, unit root test, cointegration and least squares estimation method alongside the post-estimation tests to analyze the datasets and evaluate the estimated autoregressive distributed lag (ARDL) model. The findings showed that fossil fuel use positively and significantly affects the service sector value added to GDP. As observed from the short-run results, the service sector value added increased by 11.026% following a percentage increase in fossil fuel energy use. At the same time, evidence of a positive and significant effect of renewable energy use on the service sector value added was established in both the short and long run. The results further showed that total electricity use has a positive and significant effect on the service sector value added in both the long and short run. In particular, the long-run results showed that the service sector value added increased by 1.83% as a result of a percentage increase in the total electricity usage by the firms in the sector. This finding suggests that the availability of electricity offers an opportunity for the growth of the service sector. On the other hand, the results showed that alternative energy use affected the service sector value added negatively in both the short and long run. Thus, it is recommended that governments at all levels should incentivize investments in renewable energy by providing tax breaks, grants, and subsidies for businesses that invest in renewable energy technologies to foster the long-term development of the service sector.