Relationship between Corruption and Inflation in Nigeria

This study examines the relationship between corruption and inflation in Nigeria for the period 1996 2016. Annual time series data on corruption perception index for Nigeria were collected from Transparency International while inflation rate, broad money supply (M2) and real GDP growth rate were collected from Central Bank of Nigeria Statistical Bulletin for the period. Dummy variable for democracy was also introduced. Autoregressive Distributed Lag (ARDL) approach, using bounds testing procedure to cointegration was adopted to test for the long run relationship between corruption and independent variables. Granger causality test was also conducted to detect the level of causation between corruption and inflation, broad money supply, real GDP growth rate and democracy respectively. The results show that a positive relationship exists between corruption and inflation, corruption and M2, implying that an increase in inflation and money supply increase corruption respectively. However, the relationship is not significant. A negative relationship is found between corruption and real GDP growth rate, corruption and democracy. This implies that democracy reduces corruption. It is also found that there is no causality relationship between corruption and inflation in Nigeria for the period. It is therefore recommended that monetary and fiscal policies towards reducing inflation should be pursued to reduce excess liquidity in the economy. Moreover, the on-going democracy in the country and the fight against corruption should be sustained.