Author: Akin Iwayemi & Kilishi A. Abdulhakeem
Volume: 58 Issue No:2 Year:2016

Abstract: In recent times, the focus in growth literature has shifted from understanding how countries can achieve economic growth to understanding how they can attain sustainable inclusive growth. Hence, one contemporary interest is to understand why growth is not inclusive in a number of countries, including Nigeria. It is argued in this paper that inclusive growth can be achieved only if institutions (both political and economic) are inclusive. Using the tool of game theory, the paper shows how those who control political power (the political elite) use their power to set up exclusive institutions which put the society on an exclusive growth trajectory. The outcomes of the game show that exclusive institutions emerge and thus, exclusive growth when: (I) elite consumption depend largely on rent that comes mainly from natural resources (such as oil); (ii) elite consumption is a function of market profit; and (iii) the elite are afraid of political replacement. Once a society finds itself on a particular institutional path, there is a self-reinforcing feedback mechanism that persistently keeps the society in the vicious circle. However, the vicious circle of exclusiveness can be broken if: (a) there is broad base coalition among citizens; (b) there is significant increase in citizen de jure power; or © it becomes difficult for the elite to solve their collective problems, and (d) the elite are incentivized to choose inclusive institutions.

JEL classification: C70, D72, P16