Government Size, Political Freedom and Economic Growth in Nigeria, 1960-2000

INTRODUCTION Determining the most effective political economic system for the development of a society is an important issue. Until the early 1990s, the world was characterized by two models of development--socialism, led by the Soviet Union, and capitalism, led by the United States. With the breakup of the Soviet Union in 1991, countries are abandoning socialism and adopting democratic capitalism. Since 1972, Freedom House has provided annual rankings of political freedom and civil liberties for countries around the world. (1) In 1972, while 43 countries were rated free, today 89 countries are rated free. (2) Over the same period, the percentage of free states has increased from 29 to 46 while the percentage of the not-free states has decreased from 46 to 25. (3) In the case of Africa, modest but significant gains have been made in the quest for democratic governance. In sub-Saharan Africa, while only 2 countries, The Gambia and Mauritius, were considered free in 1972, currently 11 countries are classified as free. (4) The countries are Benin, Botswana, Cape Verde, Ghana, Lesotho, Mali, Mauritius, Namibia, Sao Tome and Principe, Senegal and South Africa. (5) Although Nigeria is not among the currently free countries in Africa, it is one of the countries that have embarked on pursuing democratic market institutions. However, the political process in pursuit of such institutions has been turbulent. Since independence in 1960, Nigeria has been ruled mostly by military regimes. During its 45 years of independence (1960-2005), the country has experienced 29 years of military rule and 16 years of civilian rule. As the country tries to adopt democratic institutions, an assessment of the impact of the government and the political structures on economic growth is important. What has been the impact of this political process on the economy? The purpose of this study is to address this question. More specifically, this paper will analyze the Nigerian political economy by assessing the impacts of government size, political freedom, and openness of the economy on economic growth over the period 1960-2000. Although several studies have examined this issue, none has focused on the specific case of Nigeria. (6) On the other hand, studies that have focused on the case of Nigeria have not assessed the impact of certain variables, such as political freedom and openness of the economy, on economic growth. (7) This study addresses the limitations of previous studies by incorporating these variables in the analysis. This study also covers a period of 40 years since independence, one of the longest time-series employed in studying the political economy of Nigeria. Such a richer study should provide further insights into the determinants of economic growth in Nigeria. The next two sections present an overview of the Nigerian political and economic performance. These are followed by a review of studies on the relationship between government size, democracy, and economic growth. Next is an assessment of the impact of government size, political freedom, and openness of the economy on economic growth in Nigeria. The paper concludes with a summary and some policy implications. POLITICAL BACKGROUND On October 1, 1960, Nigeria became an independent state under a parliamentary system of government. Like most African countries, Nigeria has continued to struggle with what appears to be an elusive goal for political and economic freedoms even after more than forty-five years of independence. The country has experienced numerous military coups and counter coups and has survived a secessionist civil war. The attainment of political independence does not seem to have transformed the state because the indigenous elites that replaced the colonial administrators have failed to implemented policies to move the country forward politically and economically. The indigenous elites inherited a state that was not designed to cater to the needs of the Nigerian people; yet these elites were content with the political structures designed by the colonialists. …