GOVERNANCE QUALITY, FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH IN NIGERIA

Abstract

Economic growth is the most dominant instrument for reducing poverty and enhancing the quality of life in developing economies. The study investigates the impact of governance quality and financial development on economic growth in Nigeria using time series data from 1996 to 2021. It addresses a gap in previous research by employing all indicators of governance quality and financial development, as well as composite indices for both, to assess their influence on economic growth. The study is based on the endogenous growth model and uses the fully modified ordinary least square (FMOLS) method to tackle issues of endogeneity and reverse causality. Key findings indicate that both governance quality indicators and the composite governance index positively and significantly impact Nigeria’s economic growth. Similarly, financial development indicators and the composite financial sector index have a significant positive effect on growth. Based on these results, the study recommends prioritizing the strengthening of government institutions through democratic principles, including political participation, freedom of speech, and leader accountability. Additionally, the government should focus on creating a favorable business environment by enforcing property rights, contracts, and maintaining a corruption-free system to enhance private investment confidence and promote trade and exports.