Moderating Role of Government Effectiveness on the Link between Economic Policy Uncertainty and Entrepreneurship Development in Nigeria

Nnamdi Chinwendu Nwaeze¹, Joseph Chukwudi Odionye^1, and Agu Godswill Agu²

¹Department of Economics, Abia State University, Uturu, Nigeria

²Department of Marketing, Abia State University, Uturu, Nigeria

Cite this paper:
Nnamdi Chinwendu Nwaeze, Joseph Chukwudi Odionye and Agu Godswill Agu. Moderating Role of Government Effectiveness on the Link between Economic Policy Uncertainty and Entrepreneurship Development in Nigeria. Journal of Finance and Economics. 2025; 13(3):112-123. doi: 10.12691/jfe-13-3-4

Abstract

This study investigates the moderating influence of government effectiveness on the link between economic policy uncertainty (EPU) and entrepreneurship development in Nigeria. The research used the novel quantile-based nonlinear autoregressive distributed lag (QNARDL) paradigm to evaluate the heterogeneous effects of government effectiveness in shaping how EPU affect entrepreneurship. The findings reveal several critical insights: First, EPU significantly affects entrepreneurial activities negatively both in the short-run and in the long-run across various quantiles, with stronger negative effects observed in the upper quantiles. Second, government effectiveness was found to have a significant and positive influence on entrepreneurial development, particularly at mid and upper quantiles. This suggests that effective governance mechanisms promote entrepreneurial confidence and activities. Third, the interaction analysis shows that government effectiveness mitigates the adverse effects of EPU on entrepreneurship. Notably, at the higher quantiles, improvements in governance more than offset the negative impact of rising policy uncertainty. Lastly, the findings support the presence of asymmetry in the EPU–entrepreneurship relationship and underscore the heterogeneous nature of policy impacts across different entrepreneurial quantiles. The study recommends that policymakers should prioritize clarity, consistency, and transparency in economic policies to reduce uncertainty and ensure timely communication and well-structured policy reforms that can help build investor and entrepreneurial confidence.

Keywords:
Entrepreneurship economic policy uncertainty government effectiveness nonlinear ARDL heterogeneous

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