Institutional Capacity and Macroeconomic Performance: Empirical Evidence from Nigeria

The paper aimed at empirically investigating the impact of institutional capacity on macroeconomic performance of the Nigerian economy for the period 1961-2011. The analysis is based on a multivariate vector error correction model. The empirical results confirm co-integration relationship between institutional capacity, fiscal-monetary policy mix and macroeconomic performance. Results of the generalized impulse response functions suggest that one standard deviation innovation on institutional capacity reduces macroeconomic performance in the short, medium and long term, while results of the variance decomposition indicate that a significant variation in Nigeria’s macroeconomic performance is not attributable to changes in the capacity of institutions, based on the proxy employed. It is recommended that for macroeconomic performance to be improved and sustained, mechanisms which deliberately seek to enhance institutional capacity, with a view to stimulating growth and providing the impetus for the achievement of macroeconomic objectives in the short, medium and long term horizons be instituted and vigorously pursued.