Submission Deadline-Today
June 2024 Issue : Publication Fee: 30$ USD Submit Now
Submission Deadline-20th July 2024
Special Issue of Education: Publication Fee: 30$ USD Submit Now

Political Leadership, Financial Efficiency and Investment Growth in Nigeria

  • Aisha Aliyu Galadanci
  • Kabiru Sa’id Sufi
  • Abubakar Baba Bashir
  • Shuaibu Jafar
  • 1601-1606
  • Nov 11, 2023
  • Accounting & Finance

Political Leadership, Financial Efficiency and Investment Growth in Nigeria
Aisha Aliyu Galadanci1, Kabiru Sa’id Sufi2, Abubakar Baba Bashir3 and Shuaibu Jafar4
1&3Sa’adatu Rimi University of Education, Kano
2Kano State College of Education and Preliminary Studies
4RMK College of Advanced and Remedial Studies Tudun Wada, Kano State

DOI: https://dx.doi.org/10.47772/IJRISS.2023.701123

Received: 24 August 2023; Revised: 10 October 2023; Accepted: 13 October 2023; Published: 11 November 2023

ABSTRACT

The study examines the influence of political leadership, financial efficiency, trade, FDI and urbanization in Nigeria, using ARDL technique of estimation from 1980 to 2022. The stationarity test outcome shows that all the variable are found stationary and also the bound test found the variable fit for the long run analysis, since they have long run link. The result of the short run estimated outcome illustrates that political leadership, financial efficiency, trade and urbanization rise the level of investment growth in the country. However, FDI is not significant in explaining investment growth in the nation. The long run result reveals political leadership, financial efficiency, trade, FDI and urbanization have significant positive relationship with investment growth in Nigeria. Hence, the study suggest that good governance and promotion of the financial strength through innovative policies, planning and coordination for sustainable investment growth in Nigeria.

Keywords: Political leadership, financial efficiency, trade, ARDL, Nigeria

INTRODUCTION

In recent years, the global nations have focused more on all strategies for the growth in investment (Kalu et al., 2019). It is stressed that over 30 % rise in the level of employment had facilitates the increase in investment, human welfare and development of the citizens of several world’s nations (World Bank, 2020). The GDP growth in the countries of the world has given a good signal of innovations, investment and development through planning and good strategies (World Bank, 2020). In this development, political leadership and governance have taken significant roles in attaining growth and development of the world’s nations (Zahirah & Sidek, 2020). Similarly, it is argued that financial stability, management, investment performance, security and development were the main targets of the political leaders in the world in the past decades (Nanda and Kaur, 2016). An estimate reveals that over 90 % of political leadership wills are focused on investment growth, development and humanitarian issues (Yu, Zhou, & Zhu, 2016).

In this regard, developing nations, especially African countries have come up with the various approaches for good investment growth and development through good governance, less corruption, transparency and financial efficiency strategies (Nondo, Kahsai, & Hailu, 2016). In Nigeria, the level of investment is growing significantly (CBN, 2022). The rate of investment and GDP growth in the nation has reached almost 2% annual growth rate in the last decade (National Bureau of Statistics, 2020). Moreover, financial efficiency and stability have also accelerated towards positive direction. Despite, this development the level of human development, poverty, security and domestic investment are poor and in deteriorating conditions. Hence, this situation might be linked with the poor political leadership and financial in efficiency in the country. Therefore, the study examines the influence of political leadership and financial efficiency on investment growth in Nigeria. This study is different from the other past studies in the respect of measurement of the financial efficiency, which has not been investigated in line with the political leadership and investment growth in Nigeria.  Hence, the study contributes to the existing literature of political leadership and investment growth.

LITERATURE REVIEW

The association among political leadership, good governance, financial efficiency and investment has been studied in the literature. For instance, Yu, Zhou, and Zhu (2016) studied the influence of political leadership on growth performance in China. The study found that rule of law positively influence investment growth in the nation. Hence, the study suggest good leadership among communities yield positive outcome on investment. Similarly, An, Chen, Luo, and Zhang (2016) investigate the influence of governance on investment growth in China. The study found that political leadership influence positive investment growth and promote firms efficiency. Bokpin  (2017) examine the effect of governance and institutions on investment growth performance, using panel data of African nations from 1990 to 2013. The outcome of the study reveals that good governance and strong institutions promote the level of investment growth in Africa. Beer et al. (2019) analyze the performance of political leadership on growth of investment in Australia, Finland, Germany, USA and UK. The result of the study shows that political leadership accelerates the level of investment growth. However, Ductor and Grechyna (2015) analyze the effect of financial performance on real sector and investment in 101 nations of the world from 1970 to 2010. The finding of the study indicates that financial efficiency increase the level of real sector business and investment. Durusu-Ciftci, Ispir, and Yetkiner (2017) emphasized that financial efficiency promotes the level of investment performance in 40 countries of the world, using AMG and CCE approach of analysis. Moreover, Guru and Yadav (2019) investigate the effect of financial development on investment growth in Brazil, Russian, India and China from 1993 to 2014, using system GMM approach of estimation. The study outcome reveals that financial progress accelerate the level of investment growth in these nations. Yahaya, Mohd-jali, and Raji (2020) examine the impact of financial performance on investment growth in Sub Saharan African nations, using panel data approach. The outcome of the study reveals a positive link among financial efficiency and investment in these nations. Erdoğan, Yıldırım, and Gedikli (2020) studied the impact of financial and natural resources on investment level in 11 nations of the world from 1996 to 2016, using non-linear technique of estimation. The study finds that financial resources increase the level of investment by almost 45%. Wang, Zhang, & Zhang (2021) utilized ARDL technique of estimation to analyze the influence of financial progress on investment growth in China from 1997 to 2017. The result shows that financial progress positively influence growth performance in China.

Based on the reviewed literature, it is confirmed that relationship among political leadership, financial efficiency and investment growth exist. Nonetheless, the measurement of financial efficiency in terms of total credit efficiency given to public was not been investigated in Nigeria. Therefore, examining this indicator would add to the existing knowledge in the literature.

METHODOLOGY

This segment explains the data on the variables used and the technique of estimation for the study. In this regard, annual time series data (1980 to 2022) on political leadership (governance), financial performance (financial efficiency total credit to public ration to GDP), investment growth (GDP growth rate), Trade (total exports and imports), FDI (net inflows), Urbanization (rate of urban population) are used for the analysis. Similarly, Autoregressive lag model (ARDL) is employed in estimating the empirical model of the study.

3.1 Model specification

The study used a modified version of empirical model from Dogan and Turkekul (2015) for the relationship between investment growth and other independent variables as expressed below:

ING = f (POL, FE, TR, FDI, UBR)                                                                                               (1)

In equation 1, ING represent investment growth, POL means political leadership, TR trade, FDI illustrate foreign direct investment and UBR is urbanization. All the variables are in their natural log for easy interpretation.

The empirical model of the study is specifically more detailed in equation (2)

ING = 𝛼+ 𝛽1 POL + 𝛽2 FE + 𝛽3 TR + 𝛽4 FDI + 𝛽5 UBR + 𝜀𝑖

In equation 2 𝛽1…. 𝛽n are the variable coefficient, 𝛼 is the intercept and 𝜀𝑖 represent the error term. This model estimates and shows the association and influence among the study variables.

Hence, the ARDL model of estimation is illustrated in the following equation:

               (3)

          (4)

                                                      (5)

Where  represent the error term, t indicates the time trend and  represents the first difference operator.

RESULT

This segment illustrates the estimated outcome of the study. The estimates was based on ARDL technique of analysis and the variables were subjected to unit root test to ascertain the stationarity of the variables of the model, using Augmented Dickey-Fuller.

Table 1 Stationarity outcome

Variables ADF (level) ADF (first dif)  
LING -4.793161* (0.0005)            –  
LPOL -6.193425* (0.0001)            –  
LFE -2.462427 (0.1341) -4.931001* (0.0004)
LTR -1.414574 (0.8365) -7.012676* (0.0000)
LFDI -1.437033 (0.5541) -5.995694* (0.0000)
LUBR -1.347801 (0.3451) -6.865021* (0.0000)

Notes: * Shows statistical significant at 1 percent level

Table 1 shows the result of stationarity of the model variables, it is clearly indicates that some variables are stationary at level while others are in the first level. Therefore, it valid to conduct the bound test for the long run analysis. The bound test result confirms the existence of long-run relationship since the value of F-statistic 7.971706 is higher than the upper-bound test critical values of I(0)  3.74 and I(1) 5.06 at 1 percent level of significance

Table 2: estimated outcome

S.R Regressors Coefficients SD Errors t-Statistics Prob
∆LPOL 1.484847* 0.408317 -3.636506 0.0020
∆LFE 1.830118* 0.427574 -4.280234 0.0005
∆LTR 0.259677** 1.317385 -0.197116 0.0241
∆LFDI 0.376519 1.109257 -0.199367 0.4784
∆LUBR 1.301274** 1.2953091 -0.164109 0.0078
ECT(-1) -0.723840* 0.161743 -4.475251 0.0003
L.R Regressors
LPOL 2.066781* 0.844719 0.079057 0.0000
LFE 0.353295** 0.368904 -0.957690 0.0016
LTR 1.244602** 1.446998 1.551213 0.0039
LFDI 1.704301 1.865231 1.690156 0.0618
LUBR 1.095616* 1.286401 1.290167 0.0005
C -31.076964 15.773345 -1.970220 0.0653

Notes: * and ** represents statistically significant at 1 and 5 percent levels

Table 2 shows the estimated outcome of the short and long run results. The estimate of the short run reveals that political leadership, financial efficiency, trade and urbanization are significant in explaining the growth of investment in Nigeria. Similarly, it reveals that a percent increase in political leadership, financial efficiency, trade and urbanization result to rise in investment in the country by 1.4, 1.8, 0.2 and 1.3 percent respectively. However, FDI is not significant in determining investment growth. The speed of adjustment towards long-run equilibrium is about 72.38 percent, and it is significant at one percent.

Moreover, the long run estimate illustrates that political leadership, financial efficiency, trade and urbanization are positively influence investment growth in Nigeria. The outcome further elaborate that political leadership accelerate the level of investment growth by 2 percent. This signifies that annual governance increase the level of investment by 2 percent annually. This outcome is justified by the result of Zahirah and Sidek (2020). Similarly, the result also shows that financial efficiency, trade, FDI and urbanization increase the level of investment in Nigeria by 0.3, 1.2, 1.7 and 1.0 respectively.

Table 3 Post Estimation Checks

Test Type F-statistics Probability Result
Breusch-Pagan Test. 1.235454 0.3367 No Heteroskedasticity
Breusch-Godfrey Test 0.570058 0.5773 No Serial Correlation
Jarque-Bera 1.354824 0.5079 Normally Distributed

Table 3 illustrates the post-estimation checks. The estimated model indicates that there is no Heteroskedasticity, serial correlation and the errors are normally distributed.

CONCLUSION

This study examines the influence of political leadership, financial efficiency, trade, FDI and urbanization in Nigeria, using ARDL technique of estimation from 1980 to 2022. The stationarity test outcome shows that all the variable are found stationary and also the bound test found the variable fit for the long run analysis since they have long run link. The result of the short run estimated outcome illustrate that political leadership, financial efficiency, trade and urbanization rise the level of investment growth in the country. However, FDI is not significant in explaining investment growth in the nation. The long run result reveals political leadership, financial efficiency, trade, FDI and urbanization have significant positive relationship with investment growth in Nigeria. Hence, the study suggest that good governance and promoting financial strength through innovative policies, planning and coordination for sustainable investment growth in Nigeria. Nonetheless, the study is limited by not incorporating some important variables such corruption, continuity in government due lack of data. Therefore, future studies should incorporates these variable to elaborate the analysis and recommendations.

REFERENCE

  1. An, H., Chen, Y., Luo, D., & Zhang, T. (2016). Political uncertainty and corporate investment: Evidence from China. Journal of Corporate Finance, 36(2), 174–189. https://doi.org/10.1016/j.jcorpfin.2015.11.003
  2. Beer, A., Ayres, S., Clower, T., Faller, F., Sancino, A., & Sotarauta, M. (2019). Place leadership and regional economic development: a framework for cross-regional analysis. Regional Studies, 53(2), 171–182. https://doi.org/10.1080/00343404.2018.1447662
  3. Bokpin, G. A. (2017). Foreign direct investment and environmental sustainability in Africa: The role of institutions and governance. Research in International Business and Finance, 39, 239–247. https://doi.org/10.1016/j.ribaf.2016.07.038
  4. CBN. (2022). Annual Report.
  5. Dogan, E., & Turkekul, B. (2015). CO2 emissions , real output , energy consumption , trade , urbanization and financial development : Testing the EKC hypothesis for the USA. Environmental Science and Pollution Research, 23(2), 1203–1213. https://doi.org/10.1007/s11356-015-5323-8
  6. Ductor, L., & Grechyna, D. (2015). Financial development, real sector and economic growth. International Review of Economics and Finance, 37, 393–405. https://doi.org/10.1016/j.iref.2015.01.001
  7. Durusu-Ciftci, D., Ispir, M. S., & Yetkiner, H. (2017). Financial development and economic growth: Some theory and more evidence. Journal of Policy Modeling, 39(2), 290–306. https://doi.org/10.1016/j.jpolmod.2016.08.001
  8. Erdoğan, S., Yıldırım, D. Ç., & Gedikli, A. (2020). Natural resource abundance, financial development and economic growth: An investigation on Next-11 countries. Resources Policy, 65(August 2019). https://doi.org/10.1016/j.resourpol.2019.101559
  9. Guru, B. K., & Yadav, I. S. (2019). Financial development and economic growth : panel evidence from BRICS Biplab Kumar Guru and Inder Sekhar Yadav. Journal of Economics, Finance and Administrative Science, 12(2), 2017-0125. https://doi.org/10.1108/JEFAS-12-2017-0125
  10. Kalu, E. U., Daniel, P. B., Nwafor, U. F., Okoyeuzu, C. R., Okoro, E. U., & Okechukwu, E. U. (2019). Relating energy consumption to real sector value added and growth in a developing economy. International Journal of Energy Sector Management, 13(1), 166–182. https://doi.org/10.1108/IJESM-02-2018-0007
  11. Nanda, K., & Kaur, M. (2016). Financial Inclusion and Human Development: A Cross-country Evidence. Management and Labour Studies, 41(2), 127–153. https://doi.org/10.1177/0258042X16658734
  12. National Bureau of Statistics. (2020). Statistical Bulletin. Nigeria.
  13. Nondo, C., Kahsai, M. S., & Hailu, Y. G. (2016). Does institutional quality matter in foreign direct investment?: Evidence from Sub-Saharan African countries. African J. of Economic and Sustainable Development, 5(1), 12–30. https://doi.org/10.1504/AJESD.2016.074441
  14. Wang, J., Zhang, S., & Zhang, Q. (2021). The relationship of renewable energy consumption to fi nancial development and economic growth in China. Renewable Energy, 170, 897–904. https://doi.org/10.1016/j.renene.2021.02.038
  15. World Bank. (2020). Global Economic Prospects.
  16. Yahaya, N. S., Mohd-jali, M. R., & Raji, J. O. (2020). The role of financial development and corruption in environmental degradation of Sub-Saharan African countries. Management of Environmental Quality: An Internal Journal. https://doi.org/10.1108/MEQ-09-2019-0190
  17. Yu, J., Zhou, L. A., & Zhu, G. (2016). Strategic interaction in political competition: Evidence from spatial effects across Chinese cities. Regional Science and Urban Economics, 57(2), 23–37. https://doi.org/10.1016/j.regsciurbeco.2015.12.003
  18. Zahirah, N., & Sidek, M. (2020). Do government expenditures and institutions drive growth ? Evidence from developed and developing economies. Studies in Economics and Finance,. https://doi.org/10.1108/SEF-10-2019-0412

Article Statistics

Track views and downloads to measure the impact and reach of your article.

2

PDF Downloads

[views]

Metrics

PlumX

Altmetrics

Paper Submission Deadline

Subscribe to Our Newsletter

Sign up for our newsletter, to get updates regarding the Call for Paper, Papers & Research.

    Subscribe to Our Newsletter

    Sign up for our newsletter, to get updates regarding the Call for Paper, Papers & Research.