Analysis Of The Price And Income Elasticities Of Energy Demand In Nigeria. (1980-2019)

ABSTRACT

This study estimated price and income elasticities of energy demand in Nigeria. The objective of the study was to examine the responsiveness of demand for energy to changes in price of energy and per capita income in Nigeria. The demand for petroleum product (gasoline and diesel), proxy for energy demand is the dependent variable, while weighed average price for energy demand and per capita income are the independent variable. The study adopted regression analysis and vector error correction model to dichotomize the short run and long run in price and income of energy demand in Nigeria, using annual time series data over a period of 1980-2019. The cointegration test revealed that there is significant long run relationship between energy demand, price and per capita income. the result of regression analysis showed that the price and income elasticity of energy demand are moderately inelastic in the short run while the long run elasticities indicate that price and income responsiveness to demand are relatively elastic. The policy implication is that demand side management, through price change will be ineffective in influencing the demand for energy in short run. Therefore, any policy effort on the part of government to manage energy demand should focus on supply side and long term policy impact on the aggregate economy that has the potential of affecting the overall economic activity and aggregate income.