An autoregressive distributed lagged (ARDL) bound testing approach to electricity supply and electricity tariff in Nigeria

Abstract

The paper empirically employed the Autoregressive Distributed Lagged (ARDL) Bound Test Approach to evaluate data acquired from the CBN Statistical Bulletin, NBS, MYTO-2015 Distribution Tariffs, NERC, PHCN, NEPA, and WB/WDI Database from 1971 to 2021. The ARDL result estimate indicates that in the short and long run electricity supplies is consequential but no influence on electricity tariff and gross domestic product. This indicates that when electricity supplies grow, so does electricity tariff and gross domestic product; however, the gain is not statistically significant. Long-run and short–run electricity supply has not favor and no influence on per capita income. This suggests that as electricity supply increase, per capita income declines. The ECM coefficient, which represents the disequilibrium, is adjusted and brought back to equilibrium at a rate of 22.9% the next year. The R2 of around (77.9%) percent and the adj-R2 of about (74.4%) percent indicated that the model fit well since these levels of total variations in power supply were explained by changes in the explanatory variables. We concluded that it is essential for the development of the Nigerian electricity supply business to have a tariff that would balance the interaction between electricity supply and electricity tariffs while also ensuring a margin of returns on investment. This study recommends that Federal Government of Nigeria should spend extensively in the transmission subsector of the Nigerian Electricity Supply Industry (NESI) to increase its efficiency. In addition, private sector investment in electricity should be encouraged, as industry predictions for the next decade show a favorable trend, coupled with continuous macroeconomic progress.