Electoral Cycles and Macroeconomic Instability in Nigeria (1999 2023): Evidence from Time Series Econometric Models

Abstract

Macroeconomic instability remains a persistent challenge in emerging economies, particularly in politically active democracies where electoral incentives may influence economic policy decisions. In Nigeria, recurrent elections since the return to democratic rule in 1999 have raised concerns about the extent to which electoral cycles contribute to fluctuations in key macroeconomic indicators such as inflation, exchange rates, fiscal balance, interest rates, and real GDP growth. This study investigates the relationship between electoral cycles and macroeconomic instability in Nigeria over the period 1999Q1 to 2023Q4. The study employs quarterly secondary data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin, the National Bureau of Statistics (NBS), and the Independent National Electoral Commission (INEC). The variables considered include inflation rate, real GDP growth, exchange rate volatility (NGN/USD), fiscal deficit as a percentage of GDP, interest rate, and a political election dummy variable capturing electoral periods. The Vector Autoregression (VAR) model is used as the sole econometric technique to capture short run dynamic interrelationships among the variables, supported by variance decomposition and diagnostic tests. Empirical results from the VAR(1) best fitted model show that electoral cycles exhibit strong persistence, with a coefficient of 0.6699, but their direct impact on macroeconomic variables is weak and statistically insignificant in most cases. Inflation displays strong inertia, with a lagged coefficient of 0.9720, while exchange rate dynamics are highly persistent, with own shocks explaining over 90 percent of variation in the long run. Variance decomposition results indicate that over 95 percent of variations in inflation and exchange rate are initially driven by their own shocks, while electoral cycles contribute less than 5 percent across macroeconomic variables, suggesting limited direct transmission from political cycles to macroeconomic instability. The study concludes that macroeconomic instability in Nigeria is not primarily driven by direct electoral effects but rather by structural rigidities, institutional weaknesses, and external sector vulnerabilities, with electoral cycles exerting only indirect and limited influence. Based on the findings, the study recommends stronger fiscal discipline during election periods, enhanced central bank independence, improved exchange rate management, and institutional reforms to reduce political interference in macroeconomic policy. Strengthening policy credibility and economic governance is essential for mitigating instability and achieving sustainable macroeconomic performance in Nigeria’s democratic system.