Effect of Institutional Quality on economic Growth

A Comparative Evidence from Ghana and Nigeria

Abstract

Experts have argued that aside factors of production, institutions also matter in the production process across countries. This study investigated the effect of institutional quality on economic growth in Ghana and Nigeria, using panel data covering 1996 to 2019. Variables used in the study included the real gross domestic product, capital formation, labour force, and inflation rate, all obtained from the World Development Indicators, while the proxies for institutional quality variables such as government effectiveness control of corruption and regulatory quality were obtained from the World Governance Indicators. This study carried out the unit root test, Pedroni’s cointegration test and the Autoregressive Distributed Lag Model. The study established that control of corruption was very effective in Ghana while the reverse was the case in Nigeria thereby promoting economic growth in Ghana and retarding growth in Nigeria.  Regulatory quality was also found to promote economic growth in Nigeria, whereas it retarded growth in Ghana.  This study also found that there was government ineffectiveness which retarded economic growth in both countries.  Finally, the study recommended that the Nigerian Government should intensify control of corruption by stipulating stiffer penalties, while the Ghanaian Government should improve upon regulatory quality in order to stimulate economic growth. Finally, National Governments of both countries should introduce a policy on business process re-engineering backed by political will in order to improve government effectiveness with a view to accelerating economic growth.