Institutional Quality and Economic Growth: Evidence from Nigeria

Abstract

This study ascertained the directional effect of institutional quality through contract intensive money and effective governance index to economic growth in Nigeria using annual time series data covering the period 1979 to 2018. The study hinges on both the Solow-Swan neoclassical growth model and Washington Consensus to provide insight on the policy necessity for institutional quality. To achieve this, the study employs both the Johansen Cointegration and Ordinary Least Square (OLS) approach. The estimated cointegration test reveals joint relationship among the variables. OLS model shows that economic growth responds positively to institutional quality (contract intensive money) and is statistically significant while effective governance index exert positive and insignificant influence on the economy. The empirical results further reveal that economic growth respond positively and negative to the effect from the variables of domestic investment and foreign direct investment but significant. Furthermore, it takes 34% for the model to adjust to equilibrium in the long-term. The findings lend support to calls for quality institutions that can ensure that both private and public enterprise functions efficiently for sustainable growth and development in Nigeria.