Investigating the Impact of Cost of Governance on Economic Development in Nigeria

Abstract

This study examines the effect of governance costs on economic development in Nigeria using annual time series data spanning 1990 to 2023. Governance costs are disaggregated into federal, state, and local government expenditures, while economic development is proxied by components of the Human Development Index (HDI), namely gross national income per capita, expected years of schooling, and life expectancy. The study is anchored on the Endogenous Growth Theory, which emphasizes the role of efficient resource allocation in promoting long-run development. The Autoregressive Distributed Lag (ARDL) model was employed to estimate both the short-run and long-run relationships among the variables. The bounds cointegration test confirmed the existence of a long-run relationship among the variables. Empirical results reveal that federal government expenditure (β = -0.312, p < 0.01), state government expenditure (β = -0.218, p < 0.05), and local government expenditure (β = -0.145, p < 0.05) all have significant negative effects on economic development. In contrast, gross fixed capital formation (β = 0.275, p < 0.01) has a positive and significant effect. Inflation and exchange rate also negatively affect development outcomes, while the error correction term (-0.62) indicates a moderate speed of adjustment toward long-run equilibrium. The study concludes that governance costs in Nigeria are largely inefficient and consumption-driven, thereby constraining human development. It recommends the reallocation of public expenditure toward capital investment, improved fiscal discipline, and enhanced transparency in public financial management.