Institutional Quality, Trade Openness and Economic Performance: Evidence from Nigeria

Trade openness is essential for improving the economic performance of developing countries. Simultaneously, the quality of institutions are crucial for improving economic performance. This research examined the effect of institutional quality and trade openness on Nigeria’s economic performance. The objective of the study is to analyse the effect of governance, economic institutions, and trade openness on Nigeria’s economic performance. The research utilized the Autoregressive Distributed Lag model, the ARDL bounds test, and the error correction model to achieve the study’s objectives. The findings indicated a long-run relationship between components of governance and economic institutions, trade openness on economic performance in Nigeria. The short-run analysis indicated a connection between economic institutions and trade openness on economic performance, while a short-run relationship exists between governance institutions and trade openness on economic performance, except for the government effectiveness component. The empirical findings concluded that institutional strengthening is crucial for leveraging the advantages of trade openness to enhance economic performance in Nigeria. Consequently, the study recommended the government deliberately strengthen governance and economic institutions to leverage the spillover effects of strong institutions that facilitate trade.