An Empirical Investigation of Income Inequality, Corruption and Economic Growth in Nigeria: 1988 - 2015

Abstract

Lopsided income distribution and high corruption are key factors in explaining the gap between rising economic growth and high incidence of poverty in Nigeria over the years. Therefore, this study investigates the impact of income inequality and corruption on the economic growth in Nigeria ranging from post Structural Adjustment Era of 1988 to 2015. In order to establish whether income inequality can cause growth to occur and on the other hand whether corruption could cause growth or income inequality, the study adopts Error Correction Model and Granger Causality test. where Gross Domestic Product (GDP) is expressed as a function of Gini coefficient (GINI), corruption perception index (CPI), literacy rate (LR), and external debt servicing (EDS) using yearly time series data obtained from relevant office of statistics in Nigeria. The Unit root test confirmed that all the variables are stationary in their first difference except for gini co-efficient at 5% level. Having regards to the mixed order of integration, the study adopts ARDL Bound tests approach to cointegration which is the appropriate method to test for co-integration of the variables. The empirical findings confirmed that corruption perception index is negatively related to gross domestic product and that corruption has a significant impact on economic growth in Nigeria. Also, Gini coefficient has a negative impact on the economic growth of Nigeria because the wealth of the country hangs in the hands of only few citizens of the country. Literacy rate is positively related to economic growth and external debt servicing has a positive relationship with gross domestic product in Nigeria. The study concluded that Nigeria has the potential to build a prosperous economy, reduce poverty significantly and provide the health, education, and infrastructure services its population needs. However, available evidence indicates that these resources have not been judiciously used to meet the need of the population in terms of human capital development because of high level of corruption in the country. It is observed that corruption impacts negatively on real development of the country. It is therefore recommended that existing reforms and policies on corruption be sincerely reviewed and strengthened to ruthlessly address the causes of corruption rather than its effects and to bridge the income inequality between the rich and the poor. In doing this, the roles of the agencies and commissions saddled with monitoring corrupt practices must be motivated and encouraged. This will amount to strictly enforcing due process and the rule of law in the public administration where corruption is at the highest level.