Governance Quality and Economic Development in Nigeria

Abstract

This study empirically investigates the effect of governance quality on economic development in Nigeria. Using annual time-series data drawn from the World Bank's Worldwide Governance Indicators (WGI), World Development Indicators (WDI), and the United Nations Development Programme (UNDP), the study employs the Autoregressive Distributed Lag (ARDL) bounds testing approach to assess both long-run and short-run dynamics. Economic development is proxied by the Human Development Index (HDI), while governance quality is operationalised through government effectiveness (GEF), rule of law (RL), control of corruption (CC), and voice and accountability (VA). Control variables include education expenditure (EDEXP) and inflation (INF). Descriptive analysis reveals persistently negative governance scores throughout the study period, consistent with Nigeria's well-documented institutional weaknesses. Correlation analysis shows strong positive associations between all four governance dimensions and HDI (ranging from 0.619 to 0.715). Unit root tests confirm a mixture of I(0) and I(1) series, validating the ARDL framework. The bounds test confirms cointegration (F-statistic = 6.27 > upper-bound critical value of 4.03), establishing a stable long-run relationship. Long-run estimates show that GEF exerts the strongest positive effect (β = 0.274, p < 0.01), followed by RL (β = 0.218, p < 0.05), CC (β = 0.157, p < 0.05), and VA (β = 0.109, p < 0.10). Inflation negatively affects development (β = −0.028, p < 0.05). The error correction term (ECT = −0.512, p < 0.001) indicates a 51.2% annual speed of adjustment toward long-run equilibrium. Granger causality tests confirm unidirectional causality running from governance quality to economic development. The findings validate Institutional Theory and carry significant policy implications: sustained improvements in government effectiveness, rule of law, and anti-corruption enforcement are indispensable preconditions for Nigeria's long-term economic and human development.