Institutional Quality and Economic Misery in Nigeria

Abstract

This paper makes an improvement to the traditional institutional quality-growth hypothesis originally documented in the North’s framework by investigating the implications of the quality of formal institutions on economic misery in Nigeria. The specific measures of institutional quality include economic freedom, liberal democracy, and the corruption perception index, while economic misery is measured using Hanke’s modified misery index. The datasets obtained from the World Bank, Heritage Foundation, Freedom House, Transparency International, and Carto Institute were analysed using descriptive statistics and the autoregressive distributed lag (ARDL) model, which was informed by the evidence of a fractionally integrated series. The findings showed that economic freedom significantly reduced economic misery in the short run. At the same time, evidence of a significant negative effect of liberal democracy on the misery index was established in both the short and long run. This suggests that deepening the democratic process has the potential to mitigate the economic misery faced by Nigerians through increased employment, a decrease in inflationary pressures and interest rates, as well as robust per capita growth. In addition, it was found that the corruption perception index contributed positively to the misery index. This indicates that the pervasive and systemic nature of corruption traps many Nigerians in miserable economic conditions. Owing to the findings, this paper recommends, among others, that policymakers should strengthen the democratic process and promote economic freedom by prioritising credible elections, entrenching the rule of law, and protecting property rights to mitigate the economic distress faced by Nigerians