Effects of Public Debt on Economic Growth in Nigeria (1970-2011)

Abstract

This study attempted in examine the effect of public debt on economic growth in Nigeria between 1970 and 2011. Nigeria had her external demand to the major creditors amounted  to 36.2 billion US dollars in the year 2011 at the exchange rate N135 to  a US dollar and the total domestic was estimated  as 23.9billion US dollars in 2011. The effect of this on the economy called for investigation. Time series data were sought on CBN Statistical Bulletin, 2011 Edition, and World Development  Indicators  (WDI). The statistical  properties  of the time series data  were properly investigated using appropriate  econometric techniques. The results of the cointegration analysis from both Eagle-Granger and Johansen methods of cointegration test, reveal that there exist no long-run relationship between public debt and economic growth in Nigeria. The results from disaggregated public debt showed that there exist a positive  but non-significant relationship between per capital domestic public  debt and  economic growth ((=0.414001; P<0.05) while a negative and not significant relationship was found to exist between per capita external public debt and economic growth (((=0.57431; P<0.050. Also the overall public debt-growth model was not significant  ((F=0.182265; P<0.05). The result of the aggregated public  debt showed that, there exist a negative and non-significant relationship between per capital debt  and economic growth (=0.048849; P<0.05). Also the overall public debt growth model was not significant (F=0.002386; P<0.05). The study further employs the ECM to find out if there is evidence of any dynamic relationship between public debt and economic growth during the period under investigation, the result of the ECM estimated provides no evidence in support of the existence  of dynamic relationship between  public debt (aggregated and disaggregated) and economic growth. Also, from the disaggregated approach, only 11.1 percent of the variation in economic growth is explained by the model while the percentage of the variation in economic growth explained  by the new model increases to 44.4 percent when aggregated approach was used. This results show that debt finance is not employed as  a feasible fiscal option to foster economic growth in Nigeria during the period under investigation. It is apparent with this result  that debt finance does not produce the desired growth-effect in Nigeria. Government needs to be more transparent and committed to the course of the masses by putting borrowed money into highly productive sectors that will improve the productive capacity of the economy.