RENEWABLE ENERGY INVESTMENT AND SECTORAL OUTPUT GROWTH IN NIGERIA: SHORT-RUN DYNAMIC EVIDENCE FROM A FIRST-DIFFERENCE VECTOR AUTOREGRESSIVE FRAMEWORK

Abstract

This study investigates the predictive relationships of renewable energy investment (REI) to disaggregated sectoral output (agricultural output and industrial output) in the short-run between 1981 and 2024 in Nigeria. Empirical evidence of how REI growth translates into productivity gains in the sector at the country level is scarce in the literature despite the high renewable energy potential in Nigeria and its many policy commitments. Previously, country specific structural conditions are mixed up in panel studies and qualitative country assessments do not offer enough dynamic rigour to measure the short-run transmission. Based on the non-existence of cointegration from three different independent testing procedures (ARDL bounds, Johansen, and Engle-Granger) as captured in Table 3, this study deploys a First-Difference Vector Autoregressive model (FD-VAR) and Granger block exogeneity Wald tests. Results suggest that the growth of agricultural output is not Granger-caused by REI, nor is the growth of industrial output Granger-caused by REI. All horizons of REI contribute less than 0.17% to the variance of output forecasts in agriculture and less than 2.66% in industry, and impulse responses dissipates within five periods. The results indicate that Nigeria's current REI scale and structure are not enough to have any short-run measurable sectoral output gains. Policy should shift from installation targets to productive integration by linking renewable projects directly to irrigation, agro-processing, and industrial mini-grid systems.