There is a general argument that, in all countries, the process of economic growth, governance and investment/capital formation is closely intertwined. The importance of the soundness and effectiveness of governance in attaining increased investment and sustained economic growth cannot be overemphasized. The specific objectives were to estimate the short-run dynamics as well as the error-correction mechanism of governance, investment ratio, price level, prime lending rate, openness and financial sector development on economic growth. The hypothesis that governance and investment promotes economic growth in Nigeria was validated. The findings reveal that the significance of the error correction mechanism (ECM1) supports cointegration and suggests the existence of long-run steady-state equilibrium between economic growth, investment and governance. In fact, the ECM1 indicates a feedback of about 58.8 per cent of the previous quarter’s disequilibrium.

 

Key words: Governance, Economic Growth, Investment, Vector Error Correction, Africa, Nigeria