Institutions and Economic Performance: A Critical Evaluation of the Nigeria Economy

International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue X, October 2021 | ISSN 2454–6186

Institutions and Economic Performance: A Critical Evaluation of the Nigeria Economy

Okosu, Napoleon David

Department of Economics, Veritas University, Abuja, Nigeria

Abstract: The objective of this study is to critically evaluate the impact of institutions on the economic performance of Nigeria. To achieve this, annual time series data were employed from 1999 to 2020. Six institutional quality indicators of Political Stability Index, corruption perception index, Voice and Accountability, Rule of Law, Regulatory Quality, and Ease of Doing Business indicator, were employed as the independent variables while the dependent variable, economic performance was proxied by Gross Domestic Product (GDP) Per Capita. The result indicates that all the indicators of institutional quality have positive impact on economic performance in Nigeria in the period under review. Political Stability Index, Corruption Perception Index, Regulatory Quality and Ease of doing business have significant impact on economic performance while Voice and Accountability as well as Rule of Law had insignificant positive effect. The study concludes that there is the need for strong institutions in Nigeria as it engenders higher economic performance, thus noting that institution is the oil that lubricates the engine of economic growth and development in an economy.

Key Words: Institutionalist, Institutional Quality, Economic Performance, GPer Capita.

I.INTRODUCTION

In recent times Nigeria economic growth has been low, the economy has suffered two recessions in 2017 and 2020 respectively and has exited these recessions. The economy had between 2002-2014 experienced an average of 7 percentage Gross Domestic Product (GDP) growth. Despite the growth in these years, there were no corresponding increase in standard of living and welfare of Nigerians. Several factors as been adduced to the poor economic transformation, but of key importance is the nature and characteristics of Institutions in Nigeria. Yildirim and Gokalp (2015) opine that institutions exert a significant impact on the performances of economic performance in nations through affecting the transaction costs by decreasing uncertainty, hence encouraging economic activity to productive sectors and by building trust. The establishment, functions, workings and development of institutions differ substantially among nations, these differences lead to different economic performances in nations and is the reason why we have some nations poor while others are rich.
North (1990), notes that institutions are the humanly devised constraints that build political, economic and social interaction. They comprise of both formal and informal constraints, the formal constraints deal with property rights, laws and the constitution and the informal relates to culture and customs, taboos and sanctions. Studies have showed that, strong institutions is a critical component in creating an enabling environment for the engine of economic success to

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