Electricity Power Constraints and Trade Integration: Assessing the Drivers of Nigeria’s Non-Oil Economic Diversification

Abstract

It has become essential to diversify the Nigerian economy through the growth of its nonoil sector in order to reduce the country’s dependence on oil exports. So, identifying the factors that promote the nonoil sector’s economic expansion and their efficacy is crucial. This study examines the relationship between electricity transmission and distribution losses, nonoil trade openness and nonoil gross domestic product in Nigeria using the autoregressive distributed lag (ARDL) bounds test approach to cointegration in order to ascertain both the short run and long run association among the variables. The findings establish the existence of a long run relationship among our variables. It also revealed that electricity transmission and distribution losses has a significant and negative relationship with nonoil gross domestic product in the long run. However, in the short run, the relationship is positive and significant, suggesting that firms in the nonoil sector temporarily adapt to the electricity constraints by using alternative power sources which boosts nonoil gross domestic product before the long-run negative consequence sets in. Furthermore, the result shows that nonoil trade openness and nonoil gross domestic product’s relationship is positive and significant in the short run, while in the long run, the link is negative and significant. This indicates that the benefits of trade integration in the short run may be weakened by Nigeria’s dependence on high imports and insufficient domestic productive capacity moving forward. Therefore, government’s reforms in the power and trade sectors should be coordinated to enhance productivity, reduce import dependence and support the sustained growth of Nigeria’s nonoil economy.