An Assessment of the Nexus between Quality of Governance and Domestic Private Capital Formation in Nigeria: An Application of Error Correction Model

Abstract

We estimate the nexus between quality of governance and domestic private capital formation in Nigeria using annual data for the period of 1996 to 2019 sourced from WGIs and WDIs. The study adopts ADF and PP, Johansen cointegration test as well as the ECM estimates techniques. Finding of the study indicates stationary of the series at order of one that is I(1) and the presence of long run cointigration among the series under control as revealed by Johansen test. The result further revealed a positive significant long run relationship between control of corruption, political stability, regulator quality and voice and accountability with domestic private capital formation in the country. The ECM outcome account that 87% number of errors in the short run have been corrected in the long run. Therefore, we recommend that authorities in the country need to improve the quality of all the governance indicators especially government efficiency and voice and accountability in order to attract further domestic private capital formation.