Interaction of corruption, governance, institutional quality and underground economy in Nigeria

Abstract

The underground economy is a pervasive feature of countries throughout the world. This paper aims to investigate to what extent corruption, governance and quality of institutions influenced the underground economy in Nigeria from 1996 to 2020. The technique of analysis is the generalised method of moments, which is a statistical method that combines observed economic data with the information in population moment conditions to produce estimates of the unknown parameters of an economic model. It was generally observed that when all the control variables were introduced, institutional quality (INST) and unjust distribution of income (GIN) continued to show a positive and significant relationship with the underground economy. As such, this paper recommends that Nigeria’s government strengthen its institutional environment and apply a combination of fiscal policy and labour and financial market reforms to reduce economic inequality. Keywords: Corruption, generalised method of moments (GMM), governance, Nigeria, underground economy;