Fresh Insight into the EKC Hypothesis in Nigeria: Accounting for Total Natural Resources Rent

Abstract

The present study revisits the trade-off between economic growth and pollutant emission popularly known as the EKC hypothesis. This study distinct from the bulk of study in the literature by circumventing for omitted variable bias by the addition of total natural resources rent. Empirical investigation is conducted on an annual frequency data from 1971 to 2015. Conventional unit root test of Augmented Dickey-Fuller (ADF) and Phillips Perron (PP) unit root to establish stationarity properties. For long run (equilibrium) analysis the Pesaran’s ARDL bounds test traces equilibrium relationship between the outlined variables. The ARDL regression suggest that 1% increase in real income increases pollutant emission by 79.33% and 117.18% in short run and long run, respectively, while the electricity consumption positively increases pollutant emission in Nigeria. Interestingly, FDI inflow improves the quality of the environment by dampening emission. The current study validates the EKC hypothesis of the case of Nigeria. This suggests that the country is still at her scale stage of her economic growth trajectory where emphasis is placed on economic growth relative to quality of the environment. These outcomes are indicative to government administrators and environmental economists to be cautious on strategies to disentangle economic expansion from pollutant emissions there by necessitating the need for a paradigm shift to clean energy mix like renewable energy sources, which are globally recommended and environmental friendly