Corruption and Economic Performance in Nigeria: A Mediation Analysis of Institutional Quality and Public Expenditure Efficiency

Abstract

This paper examines the channels through which corruption affects economic performance in Nigeria, focusing on the mediating roles of institutional quality and public expenditure efficiency over the period 1990–2023. Using a mediation analysis within an Autoregressive Distributed Lag (ARDL) framework, the study decomposes the total effect of corruption on economic performance into direct and indirect effects transmitted through institutional quality and public expenditure efficiency. The results indicate that corruption significantly hampers economic performance, with the indirect effects through institutional quality and expenditure efficiency accounting for the majority of the total effect. The direct effect of corruption becomes statistically insignificant when the mediators are included, which is consistent with complete mediation. However, the decomposition of effects shows some inconsistency, and the results should therefore be interpreted with caution. The findings underscore the need for anti-corruption reforms that target institutional strengthening and public financial management rather than focusing solely on direct corruption. The study contributes to the literature by simultaneously modelling institutional quality and public expenditure efficiency as mediating mechanisms in the corruption–performance relationship in Nigeria.