This study investigates the effect of corruption on economic growth in Nigeria from 1996 to 2015. Johansen co integration test, ADF unit root test, and Ordinary Least Square methods were employed on time series (secondary) data, covering the period of study. Gross Domestic Product, Corruption Index, gross fixed capital formation and openness of the economy were the variables employed. One econometric model was specified to examine the effect of the explanatory variables on the explained variable. The result revealed that that there was significant effect of corruption on the Economic Growth (GDP). Openness of the economy (EOP) was equally statistically significant. This confirms the existing arguments that the level of corruption in a country is a relevant determinant of the level of economic growth. The study therefore recommends among others that the activities of the anticorruption agencies in Nigeria such as the Economic and Financial Crimes Commission (EFCC) and the Independent Corrupt Practices and Related Offences Commission (ICPC) should be strengthened and that there is the need to re-orientate the youths on moral values.
1.1 BACKGROUND TO THE STUDY
In recent times in Nigeria, Public debates have centered on the increasing rate of corruption resulting from in appropriation of public finance and implementation mostly in some of the developing countries. This in turn reduces the level of economic growth in most developing countries. Corruption becomes visible when the institution of the government was founded due the behaviour of people appointed or elected to manage the government institutions (Anyanwu, 2002; Idomeh, 2006). Corruption has recently become a major issue in foreign aid and Nigeria nation as a whole. Corruption is associated with poor public finance management as well as in provision of public goods. It encourages tax avoidance, resulting in a lower tax base for government revenue collection. Price Water Coopers (PwC) studies estimate Nigeria’s tax revenues at 8% of GDP, which is the lowest for comparison countries. Corruption allows for government expenditure in vested interest rather than public interest. corruption results in a lack of provision for public goods such as infrastructure for businesses, and education and health care for households.
Corruption is associated with erosion of talent in public institutions and therefore, government effectiveness, encourages hiring based on nepotism, cronyism and patronage, not merit. Therefore, reducing the quality of the public institutions, bureaucracy, creating further opportunities for bribes, enforcement of contracts and property rights becomes weak.
Ruzindana (1999) sees corruption in Africa as a problem of routine deviation from affordable standards and norms by public officials and parties with whom they interact. The major concern for international aid policy during the last five decades has been to improve the living condition for the poor in the poorest countries of the world. But governments in poor countries are also the most corrupt country due to high level of poverty. Treisman (2000) and Paldam (1999) cited in Jens and Odd-Helge (2001) states that the level of GDP per capital holds most of the explanatory power of the various corruption indicators.
Corruption is a disease, which eats into the cultural, political and economic growth of any country and destroys the functioning of various organs of the government. Transparently international (2005) opine that “corruption is one of the greatest challenges of the contemporary world which undermines good government, fundamentally distorts public policy, leads to the misallocation of resources harms the private sector development and as well hurts the poor”. The need to study corruption and economic growth in Nigeria has continued to generate passionate commentaries and academic interest due to the level of corruption in the country and its effect on economic growth. In Nigeria corruption is one of the reasons for many unresolved problems that have critically hobbled and reduce development (Ayobolu, 2006). It also remains a long-term major political and economic growth challenge for Nigeria (Sachs, 2007). International centre for economic growth (1999) states that corruption is a canker worm that has eaten deep in the fabric of the nation which ranges from petty corruption to political or systematic corruption. Abiodem (2007) in World Bank studies put corruption at over $1 trillion per year accounting for up to 15% of the Gross Domestic Product of nation like Nigeria. Corruption is a canker worm that has reduced development in all sectors of the economy (EFCC, 2005). Corruption has been the primary reason behind the country difficulties in developing fast (ICPC, 2006). Ribadu, (2003) states that this is the reason why transparency international has insisted on rating Nigeria as one of the top three most corrupt countries in the world. Following this back drop, this project in undertaken to shade light on the effect of corruption on economic growth of Nigeria.
1.2 STATEMENT OF THE PROBLEM
In Nigeria, corruption is one of the many unresolved problems that have critically hobbled and skewed development (Ayobolu, 2006). It remains a long-term major political and economic challenge for Nigeria (Sachs, 2007). It is a canker worm that has eaten deep in the socio-economic fabric of the nation. It ranges from petty corruption to political / bureaucratic corruption or Systemic corruption (International Center for Economic Growth, 1999).Corruption is endemic as well as an enemy within (Agbu, 2003). It had stunted growth in all sectors. It has been the primary reason behind the country difficulties in developing fast. This is evident in consistent Transparency International’s rating of Nigeria as one of the top three most corrupt countries in the world (Ribadu, 2003).The corruption trend in the country is alarming as the list of corrupt practices in Nigeria as well as the people involved is endless. Although, the present civilian Government has embarked on massive war against corruption via Independent Corrupt Practices Commission (ICPC) and Economic and Financial Crime Corruption (EFCC), such effort is yet to have a significant positive impact.
The effect of Corruption on economic growth has generated a lot of controversy and debate among academics, economists, bankers, policy makers, researchers and general public in recent times. The effects of corruption on economic growth are still an unresolved both theoretically and empirically. This is because the positions of theories on the corruption are quite diverse and the conventional wisdom is that a large level of corruption in the country is a source of economic instability or stagnation in Nigeria. Some empirical studies did not agree with the conventional wisdom. A few studies reported positive and significant relationship between corruption and economic growth while several others like Rotini, Obasaju, Lawal, and Ise (2013) found no relationship between an increase in corruption and economic growth in real output.
Thus, it becomes important and timely to examine the effect of corruption on Nigeria’s economic growth. In essence, the study is set to answer the questions below.
1.3 RESEARCH QUESTION
The following questions were raised in order to address the objectives of this study:
- To what extend does corruption influence gross domestic product in Nigeria within the reference period?
- Is there a long-run relationship between corruption and economic growth in Nigeria?
1.4 OBJECTIVE OF THE STUDY
The general aim of this study is to examine the effect of corruption on economic growth in Nigeria and to provide evidence for a systemic response and to support advocacy efforts for effective anti-corruption measures. Specifically, the following objectives will guide the study:
- To determine the effect of corruption on gross domestic product (GDP) of Nigeria within the study period.
- To examine the long-run relationship between corruption economic growth in Nigeria.
1.5 RESEARCH HYPOTHESES
H01: there is no significant and positive effect of corruption on gross domestic product in Nigeria within the study period.
H02: corruption does not have any significant long-run effect on gross domestic product in Nigeria within the reference period.
1.6 SIGNIFICANCE OF THE STUDY
The fact that corruption is a disease which eats into the cultural, political and economic growth of any country and destroys the functioning of various organs of the government has become an issue of debate. Transparency international (2005) opine that “corruption is one of the greatest challenges of the contemporary world which undermines good government, fundamentally distorts public policy, leads to the misallocation of resources harms the private sector development and as well hurts the poor”. The need to study corruption and economic growth in Nigeria has continued to generate passionate commentaries and academic interest due to the level of corruption in the country and its effect on economic growth. In Nigeria corruption is one of the reasons for many unresolved problems that have critically hobbled and reduce development (Ayobolu, 2006).
This study will be very useful to the various anti-graft agencies in Nigeria such as: Economic and financial crimes commission (EFCC) as it will help redirect the corruption by public officers who may have deviated from the ethical standards of their profession.
ICPC: The result gotten from this study will reveal the level of importance attached to a corrupt free society as will be established by the government and these agencies to help eradicate corruption in the country.
1.7 SCOPE OF THE STUDY
This study covered the period 1996-2015. It centers on the effect of corruption on economic growth in Nigeria for the period of 22 years (1996-2015). The study is set to trace how corruption affects economic growth in Nigeria using data from CBN statistical bulletin as well as NDIC annual reports.
The choice of the time frame for the study is informed by the intention to trace corruption as it affect Nigeria’s growth rate. Secondly to trace serially the relationship between corruption and economic growth in Nigeria. The choice of 2015 as a cut- off date for this study is to make it flexible enough to accommodate all available information and to utilize much recent materials.
1.8 DEFINITION OF TERMS
The study defines the following terms in relation with their contextual meaning.
PWC: Price Water Cooper; an agency responsible for auditing of Central Bank of Nigeria’s statistical data.
ICPC: Independent corrupt practices commission; an anti-graft agency responsible for prosecution of corrupt citizens of the country.
EFCC: Economic and Financial Crimes Commission; a federal government agency charged with the responsibility of prosecution of crimes involving money laundering.
GDP: Gross Domestic Product; a measure of a country’s economic growth and well being.
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