ABSTRACT

Government expenditure is a very important fiscal tool used by policy makers to stimulate the economy. Therefore, the study of its determinants has led us to include energy consumption in this study. The study therefore, investigated the nexus between government expenditure and energy consumption in Nigeria covering a period of 1981-2013 under the frameworks of ARDL and VECM. Findings show that there is a long-run relationship among the variables. In addition to this, results of the long-run coefficients show that oil consumption is significant and negatively related to government expenditure. Also in the long-run, electricity consumption is significant and positively related to government expenditure just as gas consumption and GDP are significant and positively related to government expenditure. The results of the short-run analyses reveal that oil consumption is significant and positively related to government expenditure. However, both lag one and two of electricity consumption are significant but negatively related to government expenditure. Also, both gas consumption and GDP are not significant and also negatively related to government expenditure. The results of the Granger causality show that there is a long-run causality running from other explanatory variables to government expenditure. For short-run causality, results show that there is a uni-directional causality flowing from electricity consumption to government expenditure. The study also founpd that there is bi-directional causality between electricity consumption and gas consumption. Evidence also shows that there is a uni-directional causality running from oil consumption to government expenditure, just as causality runs from gas consumption to government expenditure as well as from gas consumption to GDP. On the strength of the above findings, the study recommended that government should formulate polices that will boost energy consumption in the economy.