Journal of Economics, Management and Trade

This paper contributes to the debate on the relevance of institutions to economic development in Nigeria. Based on the taxonomy of institutions into informal and formal elements and the seeming overemphasis on the latter, the paper extends the argument further by stressing that Nigeria does not have a dearth of formal institutions, but rather that it is the preponderance of the negative informal institutional characteristics that compromises the efficiency of formal institutions. Consequently, the greater the fossilization of these undesirable informal institutions within the greater segments of the population, the greater the manifest inefficiency of any formal institutional rules or mechanisms superimposed on the society. Thus the informal is a binding constraint on formal institutional efficiency in Nigeria. These constraints must be relaxed through plurality of approaches; the government must play a leading role in socio-economic re-engineering. The focus must be on how to secure a durable political economic equilibrium that will dictate better institutional outcomes.