June 2025 Edition

Analysis of the Causality between Governance Indicators and Economic Growth in Nigeria

Salami Lateef, Lawal-Arogundade, Samod.O. & Bakare, Ibrahim Adeolu.O.

Abstract

This study seeks to determine the causality between governance indicators and economic growth in Nigeria using time series data from 1970 to 2020. The key variables considered for estimation were economic performance (YG), physical capital (PK), human capital (HK), labour force (LAB), government consumption expenditure (GCE), government effectiveness (GE). The governance indicators include; the percentage change in control of corruption (COC); the percentage change in government effectiveness (GE); the percentage change in political stability and absence of violence (PSV); the percentage change in regulatory quality (RGQ); the percentage change in rule of law (RLW); and the percentage change in voice of accountability are among the alternative measures of institutional quality considered (VAC). Hence secondary data were used for the study. The secondary data were obtained from World Development Indicator and World Governance Indicator database. Preliminary test of Augmented Dickey Fuller and Dickey Fuller GLS unit root tests were used to ascertain the order of integration. The choice of Toda Yamamoto Granger Causality is informed by the mixed order of integration. The result of causality show that there is evidence of significant causality running from PVS and RGQ to economic performance is an indication that political stability and the absence of violence as well as quality regulatory control have the potential to improve the performance of economic growth in Nigeria.The main implication of the findings of this study is that there is need for sustainability in the political climate in addition to strengthening of the existing regulatory mechanism that can ensure strict adherence to rule and order in the society. This study recommends that governance system should embrace quality institutional framework for sustainable economic performance.

Keywords

Governance system; economic performance; Nigeria, Toda-Yamamoto

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