Impact of Corruption on the Growth of the Nigerian Economy : Error Correction Mechanism (ECM)

Journal of Scientific Research & Reports 9(5): 1-13, 2016; Article no.jsrr.15329 ISSN: 2320-0227 SCIENCEDOMAIN international www.sciencedomain.org Impact of Corruption on the Growth of the Nigerian Economy-1960-2012: Error Correction Mechanism (ECM) I. M. Shuaib 1*, Ekeria O. Augustine 1 and Ogedengbe A. Frank 1 1 Department of Business Administration, Management Auchi Polytechnic, Auchi, Nigeria. Authors contributions This work was carried out in collaboration between these authors. Author EOA designed the study, wrote the introductory part of the paper and the literature review. Author OAF designed the theoretical framework of this paper upon we designed the model for the paper and author IMS designed the variables that formed the model for the study, tested the formulated model by using the NGDP as the dependent variable and CPI, INTR, INV, TGEXPE, DDR, EDR as the independent variables. To run the econometric analysis, Eview 7.2 statistical windows was employed, which enabled us to draw summary and recommendations from the result findings. The authors read and approved the final manuscript. Article Information DOI: 10.9734/JSRR/2016/15329 Editor(s): (1) Nidal Rashid Sabri, Ex. Dean of College of Economics (2005-2011), Birzeit University, Palestine. (2) Luigi Rodino, Professor of Mathematical Analysis, Dipartimento di Matematica, Università di Torino, Italy. Reviewers: (1) Feng Wei, Chongqing University, China. (2) Muhammad Hashim, Preston University, Islamabad, Pakistan. (3) Sergey A. Surkov, International Institute of Management LINK Zukovsky, Moscow, Russia. (4) Anonymous, Ono Academic College, Israel. Complete Peer review History: http://sciencedomain.org/review-history/12223 Original Research Article Received 20 th November 2014 Accepted 29 th January 2015 Published 10 th November 2015 ABSTRACT This paper examined the impact of corruption on the growth of Nigerian economy using time series data from 1960 to 2012. The paper utilized secondary data and the paper explored various econometrics and/or statistical analytical (Eview 7.2) method to examine the relationship between corruption and economic growth. The paper explored unit root, Cointegration analysis to test for the Nigeria s time series data and used an error correction mechanism to determine the long-run relationship among the variables examined. From the results of the findings, it was discovered that corruption has an inverse relationship with growth of an economy. The paper *Corresponding author: Email: almuhalim@yahoo.com;

recommended based on the econometric results that the government should intensify effort to create more agencies beside EFCC and ICPC to address cases of corrupt practices in the economy, encourage leaders that display transparency, honesty, probity, accountability, purposefulness and commitment to good ideals of the society before followers will be convinced of the ingenuity of such crusade, ensure corruption as a theme needs to be discourse on debate by government representatives at federal, State and local levels. This will create the awareness that corrupt practices are against norms, culture and social value of the society. Put all these together will dissuade corruption and boost economic growth to increase influx of foreign investors. Keywords: Corruption; growth; Error Correction Mechanism (ECM). 1. INTRODUCTION In questing for economic growth and development, [1] (as cited in Seer, 1971) that economic development is hinged on (i) the level of poverty rate; (ii) the level of unemployment; and (iii) the level of equitable distribution of national wealth. The reduction in the three levels determines the level of economic growth and development. Besides, the challenging factor of the economy as it were is corruption, which has wrecked the economies of the emerging countries. Therefore, the prevailing situation of corruption in these economies is at alarming rate, in other words 80% of the crashes in socioeconomic, sociocultural and sociopolitical activities are attributed to corruption [2]. Corruption syndrome is measured through (i) Influence market; (ii) Elite Cartel; (iii) Oligarchy and elite; and (iv) Official Moguls [3]. The corruption syndrome may be measured by stitching away public funds, abject poverty, unemployment, inequitable distribution of national wealth, etc. The perception of corruption is X-ray from Human Development Index and Corruption Index [4]. This has an inverse relationship with economic growth that is the Gross Domestic Product (GDP). And/or corruption is normally found in capitalist economy where the regulation of the economy is left in the hands of private individuals or to the forces of demand and supply. Remember, in the market economy, competition is high in terms of amassing wealth, etc., wealth could be illegally accrued so long as the law of the land does not catch up with the person or the social value tend to reward the wealthy class regardless of the source of the wealth provided the laws of the land have not caught up with him [5]. Put differently, this leads to corruption or economic decadence. Corruption in its ramifications is bad because it results to abject poverty or living below abject poverty line, unemployment, infrastructural decaying such as power generations, good road networks, telecommunications, internet services, good educational facilities, good health facilities, etc [6]. Shuaib and Asemota [7] Nigerian economy is mixed, which it has both the characteristics of capitalist and socialist economy. Predominantly, the capitalist characteristic supersedes that of the socialist. Though government is the highest employer of labour in Nigeria and/or the country operates democracy. In the military regime from 1966 to 1979, there were a lot squandering of public funds, corruption, maladministration, misappropriations, mismanagement, etc., except the administration of General Murtala Muhammad. In 1979 to 2014, witnessed an explosion of similar situation, beside, the General Muhammadu Buhari s regime that was freed from the scourge melted on the citizenries in Nigeria. Under these reviewed periods the country lost US$10 trillion to unlawful financial in and outflows, which are ten times more that the foreign aid offered to them. In this regard, this situation assumes that for a meaningful development to be achieved in developing countries, and then efforts have to be put in place to curb corruption. Corruption is a canker worm that has reduced development in all sectors of the economy [8]. Corruption has been the primary reason behind the country difficulties in developing fast [9]. [10] stated that this is the reason why transparency international has consisted rating of Nigeria as one of the top three most corrupt countries in the world. Uma and Eboh [11] several policies and programmes have been put in place in this regard but hydra-headed corruption and crises have been militating against positive and meaningful results. A developing country like Nigeria needs to judiciously manage her available resources, avoid all forms of misappropriation of capital and ensure friendly 2

environment for all forms of business operation. But over the years, greed, bribery, kick-backs, among others, have become the accepted way of life of many Nigerians, thereby denying millions of Nigerians their daily meal and deny the country the opportunity to emerge as a major player in the global economy. Pillay [12] Pointed out that corruption destroys life and the money stolen through corruption over the years is sufficient to feed a good proportion of the world population. He further.noted the pathetic nature of corruption as nearly 870 million people go to bed hungry every night, resulting from corruption. He added that corruption is really a great impediment to the attainment of all human rights such as civil, political, economic, social and cultural, as well as right to development. Corruption is anti-development at all stages of our nation s progress. One can see corruption as deficiency of love and if love is functionally related to the progress of man, it implies that every effort is required to maintain it, so as not to create any room for situations that can generate hunger, low living standard and oppression. Besides, if foreign investors must stay and contribute to the production process in Nigeria, there is need not to scare them away and our actions and activity need not to tell them that it is unsafe to remain in Nigeria. Corruption disrupts the free flow of resources from the source to the masses, thereby thwarting targeted allocation, and so, inability to achieve targeted goals. It has been pointed out that corruption is a world-wide social, economic and political problem that exists in all countries of the world at different degrees and can be experienced in various economic systems: socialism, capitalism and mixed economy. Besides, both democratic and dictatorial politics are not exempted from corruption. Religious organisations are also not exempted from corrupt practices [13-15]. The major aim of economic reform in Nigeria is to provide a conducive environment for private investors and FDI to flow [16]. The situation has become bad to the extent that as far back 1993, keeping an average Nigeria from being corrupt as if a goat is prevented from eating yam [17]. The recent ranking of the [18] overted that Nigeria is ranked the 35th position of the most corrupt countries of the World. Today Nigeria that is endowed with abundant resources (or natural and human) is dwelling in acute poverty. This is a fact in that an average Nigerian cannot feed on $1 (#160) daily ([19], cited in Koffi Annah, 2000). The major causes of this corruption are that the youths are not giving an opportunity to contribute to the development of this nation. It has been those pioneers who had been in powers since independence in 1960 are still the same set of people in powers. Meaning mentalities have not been changed, the same mentality of 1960 is still interplay in Nigerian political and economical terrain. No doubt that end results are poverty and unemployment of able and teeming graduands. Besides, corruption is presence mostly among the government officials or workers. No wonder uncompleted mega (capital) projects are abounding in every nooks and crannies of the country today. The financial sector was not counted out of this corrupt attitude. This ignited the reforms carried out in the banking sector since 2001-2005 and 2009-2012 [20,21]. Nigeria, as a developing economy, is seriously lacking in capital requirement for development. Many cannot afford two square meals daily due to improper and insufficient allocation of resources. The few available resources which are supposed to be well allocated in the 774 local government areas are frequently being diverted to personal use, thereby denying the people of better living standard that is expected. Hence, majority of Nigerians are living in abject poverty while few Nigerians are very wealthy to the international standard. Corruption in Nigeria has stifled industrialization and infrastructural provision. No meaningful development can be achieved without short, medium and long-term industrialization strategies. The problem of allocated resources not fully employed in certain establishments or targets as budgeted, due to corruption, retards productivity and resources utilization, thereby tying Nigerians in the vicious circle of poverty. Noted that the importance of infrastructure for economic growth and development cannot be overemphasized. [15,22]. The 1993 UNDP Human Development Report indicated that more than 21,000 Nigerian doctors were practicing in the United States alone while Nigeria continuous to suffer from shortage of doctors. All these people left the country because the government failed to take care of the people and was busy pursuing selfish interest. 3

2. REVIEW OF RELATED LITERATURE Various researchers had discussed empirically and/or theoretically the level of corruption on economic growth in both developed and emerging countries. Examining the impact of corruption on economic growth, [23] used descriptive survey and content analysis to investigate the effect of corruption and economic reforms on economic growth and development in Nigeria. It was revealed that there have been significant reductions in the level of corruption in Nigeria through the introduction of the anticorruption team or instruments. But the study also found negative corruption between the levels of corruption and economic growth, thereby making it difficult for Nigeria to develop fast. [24] used ordinary least square (OLS) and granger causality method to determine the relationship between corruption and economic growth in Nigeria. The study observed that corruption impairs and impacts economic growth. The study fails to establish the level of impact of corruption on economic growth by stating whether it is positive or negative. Rotimi [24] Examined the analysis of corruption and economic growth in Nigeria and the study introduces a new perspective on the role of corruption in economic growth and provides quantitative estimates of the impact of corruption on the economic growth in Nigeria as well as their causal relationship. This study used the ordinary least squares (OLS) to determine the relationship between corruption and economy growth. The study applied the granger causality method to measure the causal relationship that exists between corruption and the gross domestic product (GDP). The results revealed that corruption impairs and impacts economic growth. Egunjobi [25] as certained empirically an econometric analysis of the impact of Corruption on economic growth in Nigeria on an annual time series data from 1980-2009 using regression analysis. Also, the Granger causality test and impulse response function was carried out. The empirical results reveal that corruption per worker exerts a negative influence on output per worker directly and also indirectly on foreign private investment, expenditure on education and capital expenditure per worker. Furthermore, the study revealed that there is a one-sided causality where the direction of influence runs from output per worker to corruption per worker. Aliyu [26] Investigated the impact of corruption on economic growth from 1986-2007. A Barrotype endogenous growth model was adopted so also the [27] cointegration and error correction mechanism (ECM) techniques were employed. The core channels through which corruption affects growth were government capital expenditure, human capital development and total employment. Results show that corruption has significant negative effect on economic growth. The study also found that corruption exerts negative impact on both human capital development and total employment, but it positively impacts on government capital expenditure. The positive effect of corruption on capital expenditure is said to be however not surprising because public expenditure figure will always be inflated with the intention of siphoning or embezzling a reasonable proportion of the total value. Shehu [28] investigated empirically the impact of corruption on economic growth in Nigeria from 1986 to 2007. A Barro-type endogenous growth model was adopted and reconditioned to suit the purpose of the paper. The [27] cointegration and error correction mechanism (ECM) techniques were employed to unit root properties of the variables, their long run relationship and to determine values of long run parameters. The results show that corruption exerts significant direct effect on economic growth and indirectly via some critical variables examined by the researcher which include Government Capital Expenditure, Human Capital Development and Total employment. The results of the findings discover that about 20% of the increase in government capital expenditure ends up in private pockets. Ascertaining the crowding effects of corruption, Adewale [29] investigated the crowding-out effects of corruption in Nigeria, covering the periods he uses simulation approach to investigate the economic implications of corruption in Nigeria, employs Error Correction Mechanism (ECM) to overcome the problem of spurious regression, to ascertain the degree of stationary of variables employed in the study and the co-integrating properties of the data; the Augmented Dickey-Fuller (ADF) test was employed. He founds that all the econometric test applied in the study show statistically significant relationship between the model, thus, he concluded that corruption retards economic growth in Nigeria, that is corruption has a crowding-out effect on growth. 4

Determining the socioeconomic determinant of corruption, [30] examined the Socio- Economic Determinants of corruption in Nigeria using cointegration test and vector error correction model. The study discovered that there is a long-run relationship between conception and the social economic variables in Nigeria. The relationship between corruption, poverty and economic growth, [31] investigated the relationship between corruption, poverty and economic growth in Nigeria. The study employed regression analysis and granger causality test, it was discovered that there is an existence of cointegration chance tagging a long run causality relationship between corruption, poverty and economic growth in Nigeria. The relationship between corruption, FDI and economic was examined, [32] in the study of Corruption, foreign direct investment and Economic growth in Nigeria: An empirical investigation employing granger causality test and Ordinary Least Square Method in testing FDI inflow, corruption index, Exchange rate, Inflation rate, GDP for model one. For two, the variables are Gross Domestic Product, Government Expenditure, FDI and Gross fixed capital formation. The OLS result reveals that there is an inverse relationship between FDI inflow and corruption. This means that a large volume of FDI inflow is associated with a low level of corruption in the host countries. Exchange rate depreciation and inflation rate are significant determinations of FDI inflow in Nigeria. Also, there is a significant position. [33] examined the effect of globalization in a corrupt economy, The Structural Vector Auto Regression (SVAR) estimation technique is used to test this relationship. The variables used include Gross Domestic Product (GDP) growth rate, Openness (proxy by index of export plus index of import divided by GDP and corruption perception index. It was discovered that globalization engender corruption which in turn impacted negatively on economic growth. The impulse response results indicate that globalization accounts for negative shocks in the economy via its effects on corruption, while the Forecast Variance Decomposition show that corruption accounts for a substantial portion of the variance decomposition of the variables under study. Hence, there is need to tackle corruption seriously if the country must achieve the essential benefit of globalization. Corruption Perception Index (CPI) published by Transparency International (TI) since 1985 covers over one hundred is an example of polls based data. A country corruption index (or control of corruption index) measures the extent to which public power is exercised for private gain including both petty and grand forms of corruption as well as capture of the state by elite and private interest. Nageri [34] investigated the impact of corruption on economic development in Nigeria. Secondary data were sourced from World Bank reports on Nigeria and corruption reports from transparency international on Nigeria. The data were analysed using the Ordinary Least Square (OLS) regression technique. Hypothesis tested with respect to Corruption Perception Index (CPI) was not accepted implying that the tests were statistically significant, meaning that Corruption Perception Index (CPI), a proxy for corruption in this research negatively affects economic development. On the other hand, the hypothesis tested on the Corruption Rank (CR) of Nigeria and Relative Corruption Ranking (RCR) of Nigeria among countries under review was not accepted meaning that the relative position of Nigeria among countries under review and Nigeria s rank on corruption cadre is also statistically significant. The findings show that corruption has a significant negative effect on economic growth and development. Fabayo [35] in their study analyzed the consequences of corruption on investment in Nigeria using the Ordinary Least Square technique. They use the annual corruption perception index between the period 1996 and 2010. Their study revealed that low Corruption Perception Index ranking on Nigeria, which implies high level of corruption, leads to low investment and thus low economic growth in Nigeria. In another related study which focuses on the relationship between corruption and development [36], undertook an empirical investigation of the relationship between a numbers of key variables in Nigeria. Estimating a modified production function including labour, capital and political instability, corruption index is negative implying that corruption retards growth. He found that there exist a strong significant negative relationship between corruption and development. He concludes that, corruption in whatever form is inimical to the development of any society. In a similar study, [37] reported that corruption has a harmful and real effect on growth in low 5

income countries, but the direct impact of corruption on growth in low income countries (LICs) is small but negative (-0.7). So, the indirect effect through the public finance and human capital channels is relatively lower ( 0.52 percent). The over-all effect of corruption on per capita gross domestic product growth in LICs is - 0.59 percent. Ajie [38] in their study of the impact of corruption on sustainable economic growth and development in Nigeria using the method of ordinary least square, found among others, that weak institution of government; dysfunctional legal system; lack of transparency; high poverty/unemployment rate and political interference on the operations of anti-corruption agencies constitute the major causes of systemic corruption in Nigeria. 3. SPECIFICATION OF MODEL Many economists such as [29] as cited in [27] used the Baroll model to analyse the crowding out effect of corruption. In the model, corruption is shown as a proportional tax on national income. Y = AK(1-a) Pgia (1) Where Y = National Income, A = Technological Parameter, K = The private capital per worker, Pgi = the flow of public goods by corrupt practices of type i per worker. The model is useful in calculating the percentage of National output siphoned by corrupt practices as compared to the percentage spent usefully on improving the personal income and infrastructural development in the economy. This symbolizes that corrupt bureaucrats consume the budget surplus that should improve personal income and infrastructures thus making equation1 to become: Y = AK(1-a) Pgia ifaii (2) Where faii = proportional tax on national income. This study adopted the modified version of the Baroll model to explain the impact of corruption on GDP. The modified of Baroll model is stated in a functional form as: NGDP = f(cp1, INTR, INV, TGEXPE, DDR, EDR) (3) Where: NGDP = Nominal Gross Domestic Product; CPI = Corruption Perception Index; INTR = Interest Rate; INV= Domestic Investment; TGEXPE = Total Government Expenditure (i.e. FGCEXP + FGREXP); DDR = Domestic Debt Ratio; EDR = External Debt Ratio The model is expressed in a linear form as: NGDP = α 0 + α 1 CP1 ± α 2 INTR ± α 3 DDR ± α 4 TGEXPE ± α 5 EDR ± α 6 INV + µ (4) The above model is transformed into log-linear. The model is expressed as thus: LOGNGDP = α 0 + α 1 LOGCP1 ± α 2 LOGINTR ± α 3 LOGDDR ± α 4 LOGEDR ± α 5 LOGTGEXPE ± α 6 LOGINV + µ (5) Where: LOGNGDP = log of Nominal Gross Domestic Product; LOGCPI = log of Corruption Perception Index; LOGINTR = log of Interest Rate; LOGDDR= log of Domestic Debt Ratio; LOGINV= log of Domestic Investment; LOGTGEXPE = log of Total Government Expenditure; LOGEDR = log of External Debt Ratio; µ = stochastic or error term. The a priori expectations are as follows: α 1 <0, α 2 >0, α 3 >0, α 4 >0, α 5 >0, α 6 > 0, α 7 > 0 The contribution of this study to knowledge is in terms of the estimation techniques employed and the data used which is extended to 2012. An attempt will be made to empirically investigate the relationship between the impacts of corruption on the growth of the Nigerian Economy for the period 1960 2012 regression analysis. The equation was estimated using a variety of analytical tools, including Augmented Dickey Fuller (ADF) unit root tests, overparameterization and parsimonious are used to determined the long run and short run dynamic equilibrium through both Error Correction Models (ECM), and co-integration tests. The results are discussed below. The data used for the study covers the period 1960 and 2012. The study employed secondary data which are derived from various issues of [39,40] 3.1 Model Summary Table1 shows the summary of the unit root test using ADF test with Schwarz Info Criterion (SIC) maxlags 10 and 3 of the variables used for the empirical study. The test shows that Corruption Perception Index (CPI); External Debt Ratio (EDR); Domestic Debt Ratio (DDR); Investment 6

(INV); Interest rate (INTR) and Total Government Expenditure (TGEXPE) were stationary at the first differenced 1(1) at 10, 5 and 1 percent levels of significance respectively. Nominal Gross Domestic Product (NGDP) was stationary at the level 1(0) at 5, 1 and 10 percent levels of significance respectively. The next step after finding out the order of integration is to run the regression for the variables at first differenced 1(1) to enable us to achieve ECM to use for overparameterization and parsimonious models for the study and establish co-integration test. The variable NGDP that was stationary at level 1(0) has already co-integrated itself. To establish this, Johansen Co-integration test was used. Having encapsulated the unit root result, the dynamic forecasting follows that enabled the researchers to examine the Thiel Inequality Coefficient and Bias Proportion as shown in diagram 1. The Theil Inequality Coefficient is 0.08 and Bias Proportion is 0.000. These two variables are used to explain the dynamic forecast from this estimated model. Again, the large (small) variance proportion indicates that the forecasts are or are not tracking the variation in the actual CPI as it appeared in diagram 1. 3.2 Empirical Results of the Dynamic Error Correction Model (ECM) Although long-run relationship may occur among variables in the regression model, short-run equilibrium may not occur. Error correction mechanism is therefore used to correct or eliminate the discrepancy that occurs in the short-run [27]. The coefficient of error-correction variable gives the percentage of the discrepancy between the variables that can be eliminated in the next time period. The coefficients of the explanatory variables in the error correction model measure the short-run relationship. When conducting error correction technique, an overparameterized model is usually expressed to deal with the problem of misspecification in the model. This is followed by the parsimonious model, which is derived after some stepwise elimination of relatively insignificant parameters in the over-parameterized model. The results from the over-parameterized model are presented in Table 2. The parsimonious model is obtained from a stepwise elimination of insignificant dynamic variables until parsimony is obtained; the result of this process is given in Table 3. From Table 3, it was revealed that Investment (INV) and interest rate (INTR) have an inverse and an insignificant relationship with Corruption perception index (CPI). And their coefficient is not statistically different from zero at 5 percent level. This corroborated the work of [26] who discovered that corruption has an inverse relationship with investment (.i.e. output level), which means that the generated investment or output has not impacted directly on the economic growth of Nigeria. The rationale behind this inverse relationship but no significance impact of investment on economic growth is not far-fetched. This indicates that corruption in Nigeria is high. To address this problem, policy measures must be put in place to ensure total government expenditure should be used on mega or capital projects. The implication is that policy measures that are targeted at improving the investment can effectively enhance national income. The empirical results show that the coefficient of External debt ratio (EDR) and Domestic debt ratio (DDR) have a negative and insignificant relationship with corruption perception index and their coefficient is not statistically different from zero at any level. This result is supported by the work of [41] who found that external debt ratio contributed no significant impact on the economic growth of Nigeria. The reasons for the inverse but no significant impact of external debt ratio on economic growth performance in Nigeria are not far-fetched. This indicates that debts are used on consumable items (.i.e. conspicuous and ostensible goods) instead of mega or capital projects which would have contributed to the wellbeing of the citizenries of Nigeria in terms of job creations. To address this problem, policy measures must be put in place to ensure that these debts should be used on mega or capital projects. The results, however confirmed the importance of External debt ratio on Nigeria s development process. The implication is that policy measures that are targeted at improving the external debt ratio can effectively enhance national income. It is obvious from the coefficient of multiple determination (R 2 ) that the model is satisfactory as the independent variables were found to jointly explain only 60 percent of the movement in the dependent variables. The fitness of the model is confirmed by the F-statistic which is insignificant at 5 percent. Both the error correction variables (ECM 1) and (ECM 2) which are minus -0.558729 and -1.126256, were highly significant validating the error correction model specification and significant at five percent level. 7

This shows that a feedback of -1.126256 (-113%) from the previous year s disequilibrium from the long-run elasticity of the identified variables can determine economic growth. The strong significance of the ECM connotes the existence of a long-run equilibrium relationship between Corruption Perception Index and the factors affecting it. The ECM reveals a long-run relationship between explanatory and explained variables in the model. The DW was 2.01 which means there was an absence of serial correlation or autocorrelation. 3.3 Cointegration test results Co-integration test is carried out in order to determine the long-run relationship between the dependent and independent variables when one or all of the variables is/are non-stationary at level which means they have stochastic trend. Co-integration tests are conducted by using the reduced procedure developed by [42,43]. This method should produce asymptotically optimal estimates since it incorporates a parametric correction for serial correlation. The nature of the estimator means that the estimates are robust to simultaneity bias, and it is robust to departure from normality [42]. Johansen method detects a number of cointegrating vectors in non-stationary time series. It allows for hypothesis testing regarding the elements of cointegrating vectors and loading matrix. The result is presented in Table 4. It revealed that there is cointegration among the variables. This is because the Trace Statistic value of 79.21866 is greater than the critical value of 15.49471 at 5 percent level of significance, which means the probability of obtaining that value 79.21866 is zero. We reject the null hypothesis of none*of the hypothesized number of cointegrating equations. Table 1. Results of units roots tests using Augmented Dickey Fuller (ADF): 1960-2012 Variables MaxLag ADF test statistics 95% ADF critical level 90% ADF critical level 99% ADF critical level Order of integration Remark Log_ngdp_ 10 0.341726-2.918778-2.597285-3.562669 1(0) Stationary Log_ddr_ 10-6.140056-2.921175-2.598551-3.568308 1(1) Stationary Log_edr_ 10-5.408801-2.921175-2.598551-3.568308 1(1) Stationary Log_inv_ 10-6.768998-2.921175-2.598551-3.568308 1(1) Stationary Log_Tgexpe 10-7.875737-2.921175-2.598551-3.568308 1(1) Stationary Log_intr_ 10-8.411232-2.921175-2.598551-3.568308 1(1) Stationary Log_cpi_ 3-5.096848-2.921175-2.598551-3.568308 1(1) Stationary Notice: Variables are as defined in Equation 4 *Significant at 5, 1& 10 percent level Source: Author s Computation.6.4.2.0 -.2 -.4 -.6 Forecast: LOG_CPI_F Actual: LOG_CPI_ Forecast sample: 1960 2012 Adjusted sample: 1961 2012 Included observations: 17 Root Mean Squared Error 0.047124 Mean Absolute Error 0.034996 Mean Abs. Percent Error 13.55038 Theil Inequality Coefficient 0.082268 Bias Proportion 0.000004 Variance Proportion 0.029733 Covariance Proportion 0.970263 -.8 65 70 75 80 85 90 95 00 05 10 LOG_CPI_F ± 2 S.E. Diagram 1. Forecasting 8

Table 2. Modelling the impact of corruption on the growth of the Nigerian economy (A dynamic error correction model) Over-Parameterized model Dependent variable: D(LOG_CPI_) Method: Least Squares Date: 12/23/13 Time: 17:02 Sample (adjusted): 1997 2012 Included observations: 16 after adjustments Variable Coefficient Std. error t-statistic Prob. C 0.024463 0.437477 0.055917 0.9605 D(LOG_DDR_) -0.431349 0.388445-1.110452 0.3824 D(LOG_DDR_(-1)) -1.853128 1.192806-1.553587 0.2605 D(LOG_EDR_) 0.426072 0.347954 1.224506 0.3454 D(LOG_EDR_(-1)) -0.309436 0.197122-1.569767 0.2570 D(LOG_TGEXPE_) -1.036768 1.125607-0.921075 0.4542 D(LOG_TGEXPE_(-1)) -1.170725 1.189318-0.984367 0.4287 D(LOG_INV_) -1.731810 1.911882-0.905814 0.4606 D(LOG_INV_(-1)) -1.514926 1.398485-1.083263 0.3919 D(LOG_INTR_) 0.396078 0.245229 1.615135 0.2476 D(LOG_INTR_(-1)) -0.669275 0.463181-1.444953 0.2853 LOG(NGDP) 1.671787 1.136065 1.471559 0.2790 LOG(NGDP(-1)) -1.666636 1.135438-1.467835 0.2799 ECM(-1) -0.558729 0.554636-1.007380 0.4198 R-squared 0.897030 Mean dependent var 0.023951 Adjusted R-squared 0.227724 S.D. dependent var 0.080030 S.E. of regression 0.070330 Akaike info criterion -2.800682 Sum squared resid 0.009893 Schwarz criterion -2.124666 Log likelihood 36.40545 Hannan-Quinn criter. -2.766064 F-statistic 1.340240 Durbin-Watson stat 2.205247 Prob(F-statistic) 0.506548 Table 3. Modelling the impact of corruption on the growth of the Nigerian economy (A dynamic error correction model) Parsimonious model Dependent variable: D(LOG_CPI_) Method: Least Squares Date: 12/23/13 Time: 17:06 Sample (adjusted): 1997 2012 Included observations: 16 after adjustments Variable Coefficient Std. error t-statistic Prob. C 0.018523 0.032294 0.573574 0.5803 D(LOG_DDR_(-1)) -0.146626 0.238329-0.615227 0.5536 D(LOG_EDR_(-1)) -0.089844 0.073217-1.227090 0.2509 D(LOG_TGEXPE_(-1)) 0.181828 0.222670 0.816582 0.4352 D(LOG_INV_(-1)) -0.012494 0.862650-0.014483 0.9888 D(LOG_INTR_(-1)) -0.029960 0.153963-0.194595 0.8500 ECM(-1) -1.126256 0.380676-2.958570 0.0160 R-squared 0.604069 Mean dependent var 0.023951 Adjusted R-squared 0.340116 S.D. dependent var 0.080030 S.E. of regression 0.065011 Akaike info criterion -2.328881 Sum squared resid 0.038038 Schwarz criterion -1.990873 Log likelihood 25.63105 Hannan-Quinn criter. -2.311572 F-statistic 2.288542 Durbin-Watson stat 2.010167 Prob(F-statistic) 0.127319 From this result, we derive our forecast from 1960 to 2010 9

Table 4. Results of Johansen co-integration Date: 12/24/13 Time: 00:23 Sample (adjusted): 1999 2012 Included observations: 14 after adjustments Trend assumption: Linear deterministic trend Series: LOG_CPI_ LOG_DDR_ Exogenous series: @TREND LOG_EDR_ LOG_INV_ LOG_INTR_ LOG_TGEXPE_ Warning: Critical values assume no exogenous series Lags interval (in first differences): 1 to 2 Unrestricted cointegration rank test (Trace) Hypothesized Trace 0.05 No. of CE(s) Eigenvalue Statistic Critical Value Prob.** None * 0.996474 79.21866 15.49471 0.0000 At most 1 0.010918 0.153690 3.841466 0.6950 Trace test indicates 1 cointegrating eqn(s) at the 0.05 level; * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Accordingly, Trace Statistic test indicates none* cointegrating equations at 5 percent level of significance, which means we do reject the null hypothesis and accept the alternative hypothesis as its Trace Statistics is greater than critical value at 5 percent level of significance. For the remaining number of hypothesized cointegrating equation (at most 1), we do not reject (or accept) the null hypothesis and reject the alternative hypothesis as its Trace Statistic value is less than the critical values at 5 percent level of significance. The main conclusion is that there is the existence of long-run relationships amongst the variables. The variables may wander away from themselves, but in the long-run, there is the existence of relationship amongst them. 4. SUMMARY The econometric results of the stochastic characteristics of each time series by testing their stationarity using Augmented Dickey Fuller (ADF) test, Error Correction Model (ECM) and cointegration tests employed to examine the impact of corruption on the growth of the Nigerian economy for the period of 1960 to 2012. The empirical results obtained from the paper make it clear that there is no significant relationship between corruption and/or economic growth in Nigeria. The empirical results of the paper conform with the existing studies in our literature that reveal that there is, indeed a longrun relationship among the domestic debt ratio, external debt ratio, investment, interest rate, corruption index, and economic growth in Nigeria. All the variables have short and long-run with each other as revealed by cointegration test. The empirical result further proves total government expenditure as source through which output could be increased in Nigeria. It is evident that there is feedback mechanism between total government expenditure and economic growth in Nigeria. Also it was revealed from the results that DDR, EDR, INV, INTR, CPI exert an inverse impact on the economic growth in Nigeria. 5. RECOMMENDATIONS From the econometric study of the impact of corruption on the growth of the Nigerian economy from 1960-2012, the following recommendations are stated below: Government should intensify effort to create more agencies beside EFCC and ICPC to address cases of corrupt practices in the economy. Government should encourage leaders that display transparency, honesty, probity, accountability, purposefulness and commitment to good ideals of the society before the followers will be convinced of the ingenuity of such crusade. Government should ensure corruption as a theme needs to be discourse on debate by government representatives at Federal, State and local level. This is will create the awareness that corrupt practices are against norms, culture and social value of the society. Government should formulate and implement policy on how to combat poverty and unemployment that is engulfing 95% of the Nigerian population. This is severe on the teeming graduands of different universities in the country. 10

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