Impact of corruption on Nigeria's Economic Development from 1995 to 2019

Impact of corruption on Nigeria ’s Economic Development

¹ Nwabueze Prince OKENNA

¹ Development Policy Analysts

¹ Department of Economic Policy & Development

¹ Gilgal Economic Foundation & Research Institute, Abuja, Nigerian (www.gilgaleconomicfoundation.com)

Abstract

The main aim of this study to analyze how corruption impedes the development of most African countries with Nigeria as a case study.

In Nigeria, corruption is among the many unsolved challenges which has critically affected the country’s economic development. It has also been identified as one the roadblocks to the economic transformation of her (Nigerian) economy. In few words, corruption refers to a socioeconomic situation where public funds and resources meant for development are diverted and used for private gains, and it is showcased in various means which ranges from misuse of public positions, lack of accountability and information of public expenses, increase in prices of contracts, high level bribery, forgery of documents and contracts agreements, tax dodging and evasions, and other locally know common deceptions called as “419”, among others.

During the research, various kinds/types of corruption were highlighted, its adverse effects, with policy recommendations proffered to eradicate this unnecessary evil.

Keywords — Corruption, Economic growth, Development, Poverty, Nigeria.

I. Introduction

It should be known that corruption and funds misappropriation is as old as man’s existence on earth. Its root cause can be associated to greed. It can be seen in both the government and privately owned sector of the economy, as well as in charitable non-governmental organizations. It survives in both developing and industrialized nations of the world but more pronounced in the third world developing countries. (Rotimi, Obasaju, Barnabas, Lawal, IseOlorunkanmi, J (2013).

According to the World Bank’s definition, corruption translates from the misuse of government’s funds and privileges for personal benefits. Government positions are abused through hike in budgets estimate on various projects such as construction and repair of roads, building of bridges, houses, hospitals, schools.

Government offices are abused and misused when these individuals at the helms of these government offices gives out bribes to hijack government policies for personal gains. Irrespective of these, government positions are abused for private gain even though there were no bribery cases. This is because the stealing of state assets and resources has been identified as one of the major means corruptions are measured which creeps into the public sector of any country (World Bank 1997).

Corruption is also a deception of duty emanating undeviating from the subjection of government purposes to a private individual. Consequently, anyone who practices any of these has committed an act of fraud by placing his personal benefits over that of the country (Gire, 1999). Extremely corrupt countries are constantly in the cruel cycle of poverty commonly referred to "vicious poverty circle". The earnings of the citizens in these countries are extremely low which contributes to low savings, investments, and productivity as well. The adverse weights of the widespread of corruption continually hampers the economic development of any of these developing countries. This contributes to the high level of insecurities in the country that is evident from the various high level of social vices ranging from petty thieves to attacks from insurgents and boko haram attacks in the country.

These economic decades caused by corruption erodes the social-economic value of a nation. It is paramount to state that the issue of corruption became more pronounced since 1992 has consistently become a huge hindrance to her development.

Even though it is a known issue in the world that has proven difficult in its elimination, its adverse effects are more stringent in Nigeria. To this end, reputable global organizations such as IMF, IBRD, and others have started showing concerns towards the corruption level and how it as consistently strives in Nigeria. Most of their policies are now targeted towards its eradication and ultimately, how it can strongly discourage the younger generations from patronizing it as one of the ways to make it early and get rich quickly -parts of these efforts are not limited to prosecution of corrupt leaders which include seizure of properties, travel bans and many more.

According to the UNDP HDI (human development index) report of 2005, Nigeria is ranked as the number 158th out of 159 third world underdeveloped countries of the world despite its abundance of human and natural resources. This is worrisome because other researchers have also linked her under-development to the high level of corruption that goes on especially in her political, social and economic sphere.

According to a study conducted by Osunyikanmi in 2007, he pointed out that wherever corruption exits It has been noted that where corruption exists, even a highly endowed nation in terms of natural and human resources may fail to develop. It might be slightly difficult to comprehensively analyse these tendencies in Nigeria due to the poor availability of data to measure the extent and index of bribery, embezzlements, and frauds in the country.

This study aimed to analyse thoroughly the dangers and economic costs of corruption on the economy of developing countries with Nigeria at the centre of its investigations. Through this, recommendations will be proffered that when implemented by developing economies will put them in the right perspective towards their economic sustainability goals and objectives of the government.

II . Related Work

Previous research and studies have been conducted on similar subject, but only few analysed its impact on economic development at the microeconomic level considering foreign investment, and industrial value contribution. A few researchers discussed the extent and how deep corruption impedes the development of both the industrialized and less industrialized economies. Some of these authors are Abiodum, Elijah and Obayelu (2007. In their study and analysis, they adopted a descriptive survey approach and content investigation to examine these effects on macroeconomic reforms. The results revealed that significant declines in corruption, bribery and extortions by public officials can be achieved through the introduction prosecutions of corrupt officials by an anti-corruption team or agency.

Rotini, Obasaju, Lawal and Ise, in 2013 used the ordinary least square (OLS) and granger causality estimation method to determine the relationship between corruption and economic growth in Nigeria, just like many other studies and research had.

This study will adopt a different approach by adopting an Ordinary Linear regression estimation technique through the incorporation of differenced time series data and parameters such as Expenditure of the Government (GOVt), Foreign Direct Investment (FDIt), Corruption Perception Index (CPIt), and Industry Value Added (IVAt) obtained through World Development Indicator (WDI), CBN Statistical bulletin, and Transparency International.

III . Methodology

Time series data for this study were collected from secondary sources (Transparency International, National Bureau of statistics, and Central Bank of Nigeria). The ordinary least square estimation technique was used in the data analysis prior to which, the data were differenced and logged to prevent spurious results.

In a view at ensuring transparency and accurate statistical results, Unit Root Stationarity, Johansen’s Cointegration, T-Statistics, and F-Statistics test were conducted on the data collected as well as different level of differences and logging to confirm stationarity. The time series data collected covered the period between 1995 - 2016 and these are; Gross Domestic Product (GDPt) as a proxy to measure economic development, Government Expenditure (GOVt) as proxy to measure government's spending on Development Infrastructures, Foreign Direct Investment (FDIt) as a proxy to measure to measure foreign investors contributions on Economic development, Corruption Perception Index (CPIt) a proxy to measure the index of corruption, and Industry Value Added (IVAt) as a proxy to measure the contribution of the industrial sector to economic development. The Data collected were analysed with the aid of EViews (Econometrics Views) software using the Ordinary Least Square estimation technique.

MODEL SPECIFIED

In consonance with the research conducted by Mo in 2001, and Pellegrini and Gerlagh in 2004, where the direct and indirect effects of corruption on economic development were identified which was also in line with Barro’s model. Based on these similarities, this paper adopted the endogenous growth model as it allows for the incorporation of other policy variables in the estimation equation. Specifically, the model was modified to include Industry Value Added (IVAt) and Expenditure of the Government (GOVt) as part of its explanatory variables.

Three models were specified to understand the relationship between corruption some indicators.

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Testing the hypothesis that:

H0: Corruption does not affect the government expenditure H1: Corruption significantly affects government expenditure in Nigeria.

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Testing the hypothesis that:

H0: Corruption has insignificant FDI contribution

H1: Corruption impacts on FDI significantly in Nigeria

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Testing the hypothesis that:

H0: Corruption has not significant effect on IVA

H1: Corruption significantly impacts on Industry Value Added in Nigeria.

Concurrently, the regressed model of all indicators is given as:

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STATISTICAL CRITERIA

This strives to evaluate the statistical authenticity and reliability of the various data and parameters that are estimated. The essence of this is to avoid spurious and misleading results that may arise from the regressed data. In this case, the F-statistics, t-statistics, Co-efficient of determination (R2) and the Adjusted R2 were employed.

THE COEFFICIENT OF DETERMINATION (R[2]) /ADJUSTED R[2]

The coefficient of determination (R2) is employed to infer the descriptive potential of the explanatory variables on the dependent variables. It denotes the rate of changes in the dependent variable judged by the changes in the autonomous variables.

The F-test

The F-test result commonly referred to as F-statistics is used to examine if there exists any meaningful influence between the dependent and the autonomous or independent variables. In its real analysis, when the F-calculated is greater than the F-tabulated that is obtained through the F-table, it implies that there exists a major significant relationship/impact between the dependent and independent variable and vice-versa.

conclude that the autocorrelation is still negative, but not perfect.

A-PRIORI EXPECTATION

An a-priori expectation is a theoretical logical declaration that is pronounced by the theoretical underpinning of the economic theory under consideration. For this research work, it is justifiable and required the corruption index, (CPI), Foreign Direct Investment (FDI), Government Expenditure (GOV), and Industry Value Added (IVA) to a considerable length influence Nigeria's economic development. Foreign direct investment, Industry Value Added, and government expenditure are all expected to be positively related to economic Development, while corruption perception index is assumed to be negatively correlated to economic development proxy by GDP.

REGRESSION RESULT

The regression results of the models formulated are given below.

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Table 1.0 Regression result of model 1 (GOV= f (CPI)

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Table 1.1 Regression result of model 2 (FDI= f (CPI)

T-STATISTIC

This statistic is used to ascertain the level of trustworthiness regarding the significance of the coefficient of the variable under consideration. Here, the absolute t-value of the coefficient is analyzed with the value obtained from the t-table. Here, we can decide to accept or reject the result based on the level of significance.

TEST FOR AUTO-CORRELATION (DW)

The Durbin Watson (DW) is a statistical tool used to test for the presence of autocorrelation in research work. In a few words, the test results often represented with a "d" can be interpreted as:

1. when DW is approximate to 2, it is assumed that there is the absence of autocorrelation
2. When DW is zero (0), it is assumed and taken that there is a positive perfect autocorrelation. And when 0<DW<2, we conclude that there exists autocorrelation but, in this sense, it is not perfect.
3. When DW is 4 or approximately 4, we conclude that there is a presence of a perfect negative autocorrelation. However, when 2<DW<4, we conclude that the autocorrelation is still negative, but not perfect.

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Table 1.2 Regression result of model 3 (IVA= f(CPI)

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Table 1.3 Regression result of model 4 (GDP = f (CPI, GOV, IVA, FDI)

INTERPRETATION OF REGRESSION RESULTS IV. Results and Discussion

The results of all the models regressed and the various tests will be analysed and interpreted below.

The result obtained from model 1 (GOVt = β0+ β1CPIt + μt) showed a positive or direct proportional relationship linking corruption to government expenditure.

A unit increment in corruption measured by CPI will lead to a proportionate rise in (GOVt) government expenditure by 45421.12 units. And a unit decrease in CPI index will also lead to a proportionate decline in government expenditure by 45421.12units.

The result obtained from model 2 (FDIt = β0+ β1CPIt + μt) shows there exist the same proportional positive relationship also between FDI index used to measure Foreign Direct Investment and CPI -a proxy in measuring Corruption.

A unit rise in the CPI index will lead to a rise in the FDI index by 98307057units which is the proxy used to measure Foreign Direct Investment. And a unit decline in the CPI index will also trigger a 98307057units decline in the FDI index -a proxy used to measure Foreign Direct Investment in the country.

The result obtained from model 3 (IVAt = β0+ β1CPIt + μt) indicates a negative relationship exists between IVAt - proxy used to measure Industry Value Added (IVA) and the CPI index. A Unit rise in the CPI index will lead to a decline in IVAt -Index used to measure Industry Valued Added of a country by -0.619266 units. And a Unit decline in the CPI index will cause a rise in the IVAt index by 0.619266 Units.

The general regression result (GDPt= β0 + β1(CPIt) + β2(GOVt) + β3(IVAt) + β4(FDIt) + μt) indicated the existence of an inverse relationship between GDP, CPI, GOV, and IVA respectively. While on the other hand there exist a direct positive proportional relationship between GDP and FDI.

The coefficient of determination (R-squared) indicated that the model and regressed resulted has a goodness of fit with 0.95 (95%) variation in GDP attributed to variations in the independent variables. Also, the F-statistic confirms these findings and claims with its significance statistics showing all variables are stationary, not spurious, and well regressed.

POLICY IMPLICATIONS OF FINDINGS

The wide-ranging antagonistic consequences of societal and economic decay caused by corruption in Nigeria revealed through this study requires drastic measures which involve effective and proactive policies formulation to drastically address it and ensure it is curbed to its barest minimal level.

Significant caution and attention need to be given and applied to the roles of anti-corruption agents and agencies with particular reference to whistle-blowing as well. Our independent anticorruption commissions such as ICPC, EFCC etc. need to be consistently strengthened and empowered to handle and prosecute all corruption-related offences and cases without intervention from the government or any other third party.

Austere long-term measures need to be implemented and sustained void of political interference in sectors where corruption is always the deal of the day, particularly in the government sector.

In examining the impacts of corruption on the Nigeria economy, the regression analysis result carried out revealed that corruption cripples and has significantly impeded economic advancement/development of the country. It worth noting that the results obtained were all statistically significant.

From the preceding evidence and arguments in this study, including from the practical studies and research works, we have seen that this evil is a locust that has drained and anchored itself deeply within every sphere of the Nigerian economy that must be fought! it has stolen the resources of wealthy and endowed countries such as Nigeria thereby creating and contributing immensely to the vicious poverty circle, unemployment, and decay in public infrastructures in the country. This is because the further corrupt a nation is, the more backwards and subdued her industrial and economic development would be affected.

It is a discredit that ruins the trustworthiness, investment prospects, and image of any nation that it has taken its grip on. It diminishes the investment prospect and attraction of international investors thereby lessening and impacting on her growth negatively.

Ever since it has found its way into the Nigerian system and most developing African countries, we have been retrogressing steadily -a step further towards development takes us about 10 steps backwards. This is due to the loopholes, increase cost of production, development, inflation, time lost that corruption causes and impacts on the economy.

Despite concluding that corruption is a widespread phenomenon that its existence is also not far fetch from the developed economies as well, its consequences are much harsher and rooted in Nigeria.

In the course of this research, it became evident that corruption manifests itself in several forms and not just in the form of bribery, misappropriation of funds, hike in the prices/cost of projects, among others. It also manifests itself in the form of election rigging, vote-buying, forgery of certificates, and as low as forgery of school reports by students and stealing of his fellow pupil or classmate's assignment.

It was found that it has equally eroded the moral values in our society leading to increase crime rates, social vices, prostituting for money, human trafficking.

Conclusion and Future Scope

From the reviews and analysis, corruption affects economic growth and development adversely. It is enormously expensive to the extent that macroeconomic growth, transformation, and development will be slowed if not restricted.

Nigeria as an independent nation has the prospect to grow a flourishing, rich, well-off industrial economy with the potential to defeat the hunger, mass poverty, and create jobs at a massive significant scale, and to afford the construction of world-class medical facilities, hospitals, schools for better education, with top-notch infrastructure for its citizens.

However, for this to be attained, she must step up her game in the fight against corruption.

In conclusion, irrespective of the benefits accrued from a country's abundant blessing in natural and human resources, her foreign reserve, aids from developed industrial nations and reputable world institutions, an atom of corruption in such economy will significantly impact and impedes all policies formulated to drive her development -thereby, making them to consistently swim in the vicious poverty circle. This is because, as a basket never be filled even when emerged in an ocean because of its leakages and loopholes, so can no economy in the world prospers or develop due to corruption which symbolizes these loopholes and leakages.

POLICY RECOMMENDATIONS

In a bid to eradicate corruption from Nigeria, various efforts have been made by both current and previous governments although these have yielded little and insignificant results. It is worth noting that despite these, more efforts still need to be made and invested towards curbing this menace in Nigeria.

This research recommends that strategic and deliberate actions need to be made by the government in tackling and eradicating corruption in the country. Based on these findings, this policy recommends the following as outlined below;

1. The activities of the 2 major anti-corruption agencies and bodies in Nigeria should be strengthened. These are the Economic and Financial Crime Commission (EFCC), and the Independent Corrupt Practices Commission (ICPC). They should be made independent of government control and at the same time, empowered to prosecute corrupt government officials without interference from the government.
2. Whistle-blowing to expose any corrupt practices and officials should be encouraged and should come with compensation. In addition to this, all whistle-blowers identity should be treated in strict confidentiality. All compensation that attributed to whistle-blowing should be tied to a particular percentage as this will enable them to know what they stand to gain as it will serve as a form of encouragement to them.
3. Any individual or government officials found guilty of any corrupt offences should be immediately stripped of all his official privileges such as immunity to ensure they do not use their political influences to buy their way out and at the same time intimidate the prosecutors of their cases during the trial. It is also worth stating that there should be a specific time frame and the deadline for all corruption charges and allegations to be probed and the individual in question prosecuted. Unnecessary delays and bureaucratic court processes hinder the administration of justice on these corrupt officials.
4. The government should introduce "moral education studies" as one of the fundamental and core subjects that should be taught to kids especially to those in their early education stage such as in the primary and secondary schools. Here they should be taught human dignity, respect for human lives, and morals. They should also be taught the dangers of corruption and strongly discouraged from partaking in it. At their early stage, they should be aware that little acts such as stealings as little as pencils, notes, copying assignments, etc are corruption as well and they should be punished severely for it.
5. The government should also take strong exemplary measure by practising good governance through accountability, transparency, and accountability serve as an example by practising good governance, transparency, and accountability.
6. In addition to the above, the government should also practice free, fair, and credible election at all times that are also transparent to ensure the right candidate are elected into power. Before this, background checks and all assets declarations must be made public and accounted for before and after their political appointments or government positions.
7. Severer punishments must be exacted on anyone indicted of fraudulent, deceptive, and corrupt practices immediately they are found guilty. This will serve as a discouragement to others who has such intentions.
8. This research further recommends that an independent monitoring and evaluating commission be equally established to observe and monitor all funds and expenditures approved for spending in the annual budget by all parastatals, commission, agencies, and states to ensure they are effectively and judiciously used for the purpose they were approved for.

Acknowledgment

All gratitude and thanks to God for the grace and knowledge He bestowed on me. It is a great privilege to share my thoughts and contributions to existing knowledge out there through this medium.

Author profile

Mr. Okenna Nwabueze Prince holds a Bachelor of Science (honours) degree in Economics from University of Abuja Nigeria. He has over 3years of experience in development policy formulation for macroeconomic sustainability.

He desires to pursue a Postgraduate degree in economics with specialization in development cooperation to contribute his quota towards Nigeria’s (and developing African Nations) actualization of the World Bank and United Nation’s sustainable development 2030 goals and agenda. He is also a skilled researcher, and proficient in the use of EViews and SPSS statistical tools.

References

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