An Empirical Investigation on Institutional Quality, Growth, and Poverty Alleviation in Nigeria

Introduction

Governance encompasses all political and institutional processes and outcomes that are crucial for achieving developmental goals. According to OHCHR (2023), good governance is participatory, transparent, accountable, responsible, and responsive to the needs of the citizenry. Often time governance and government are used interchangeably, while government is broadly seen as a set of institutions and laws, governance relates to the behavioral relationship that exists between the governors and the governed. It is a broader set of connections between the citizenry and public office holders who apply the laws and deliver public services. Having good governance is the extent to which the public office holders deliver economic, civil, political and social rights. Good governance increases the ability of the poor to be involved in and benefit from growth. Corruption negatively impacts economic growth by inhibiting some drivers of potential growth such as public and private investments, financial and macroeconomic stability, human capital accumulation and total factor productivity. For example, in a corrupt society public goods and services can be made inefficient due to the fact that corruption lessens government ability to allocate public services efficiently and in an equitable manner. Moreover, through corruption resources that could have been used to provide and improve citizenry welfare are wasted. Corruption constitutes a significant barrier to entry for new investors who may not have good and sufficient navigating sense to do business in Nigeria.

Government effectiveness and rule of law are known as economic governance and institutional governance respectively. Economic growth if complemented with reliable and transparent public administration, effective government policies and efforts to promote citizenry confidence in legal authorities and its institutions could lead to a non-discriminatory redistribution of economic gains and improvement in welfare. More so, promoting inclusive growth requires effective implementation of government policies and the existence of institutions that can make possible a fair distribution of gains from economic growth. In furtherance to this, by promoting property rights and encouraging equitable enforcement of law for individuals and firms facilitate a system with strong rule of law which promotes inclusive growth. A country with weak rule of law will not be able to attract investment (Idowu & Awe, 2014). This as well negatively impacts the poor through property rights and the inadequacy of various settlement mechanisms. A country with good justice system will attract more investment. In 2001, Hudson and Mosely opined that “law and order” is one of the most important factors in governance for economic growth and consequently poverty alleviation.

Governance quality ranging from government ineffectiveness, political instability, corruption, economic insecurity, terrorism amongst others has left millions of Africans to live in poverty. Of a fact 23 out of 27 countries ranked by World Bank as low income economies or poorest countries in the world are in Africa (World Population Review, 2022). While extreme poverty increased by about 3 percent in West Africa, 4 in 10 Nigerians live below the poverty line and close to 80 million of the nation’s population are poor (World Bank, 2020; United Nations, 2022). With Covid-19, poverty headcount rate is projected to increase from 40.1 percent in 2019 to 42.6 percent in 2022 (World Bank, 2022). Implying that population in poverty would increase from 89 million to 95.1 million in 2022.

This study hence interrogates the followings; (i) Are governance institutions effectively guaranteeing poverty reduction? (ii) To what extent do these institutions interact and reinforce each other? (iii) What are the implications of these institutions on poverty reduction and growth in Nigeria?

This study contributes to existing literature in the following ways. First, it uses data to show the interrelationship among economic growth, poverty and governance indicators using correlation matrix. Second, it investigates the causal relationship between poverty and economic growth using granger causality test. Finally, it then uses regression analysis to ascertain the effects of institutional quality on poverty and growth in Nigeria.