An Empirical Review of Corruption and Economic Output in the Nigerian Banking Sector: An Empirical Review

Abstract

The study utilized quarterly series from 2004-2018 in logarithmic form to investigate corruption impact on real economic output; and the eviews10 statistical software was employed to conduct the analysis. Data were sourced from the Central Bank of Nigeria (CBN), Nigerian Deposit Insurance Corporation (NDIC) Statistical Database and the FITC Report on fraud and forgeries in banks. Results from the unit root test reveal stationarity of the variables at first difference. The Johansen test shows that a long run equilibrium relationship exists at the 5 percent level. The F-statistic from the VAR estimates signify that all of the lags of each of the individual variable is jointly significant. Lags of Suppression of Entries (SE) and Teller Fraud (TF) have significant explanatory power for real economic output in the causality test. In addition, the impulse response and variance decomposition test reveal that innovations to the system impact negatively on real economic output. Overall, the result strongly suggest significant influence of the variables on the variations in real economic output; thus, supporting the ‘Sand the Wheels’ hypothesis that corruption is an impediment to growth and development. Consequently, the study advocate that banks should put in place leading-edge technologies as well as stringent penalties to discourage corrupt acts. Also, the Central Bank of Nigeria should authorize that banks conduct monthly training and retraining of its workforce on good ethical benchmarks as well as improved reward systems to minimize corruption among its officials.

Keywords: Corruption, Real GDP, Financial Institutions, VAR, Wald test.