Dynamics of Public Debt and Economic Growth in Nigeria

Abstract

The study examined the Dynamics of Public Debt and Economic Growth in Nigeria, from 1980 to 2018. The study adopted Vector Auto Regressive Analysis in estimating the Data obtained from World Bank Development Indicator and Central Bank of Nigeria (CBN) statistical Bulletin, Annual Report and Statement of Account for the year 2018. The variables used in the study are GDP proxy for economic growth which serves as the dependent variable and External debt, Domestic debt, Government expenditure and Exchange rate form the independent variables. However, from the result it was deduced that, external debt, and domestic debt has a negative impact on economic growth in Nigeria. This is shown by the negative coefficient of EXDBT, and DDEBT. However, government expenditure and exchange rate has a positive impact on economic growth in Nigeria, and jointly, all the variables were significant as seen with the probability statistics. The VAR, estimates was able to show the extent of dynamics between public debt and economic growth especially when debts are disaggregated into external and domestic debt. It was concluded that, while domestic debts sign negatively with Nigeria’s gross domestic product, external debts sign negatively with it. The results contradict a-priori expectation of positive relationships based on theoretical postulation of the advantageous effects of leverage both at corporate and national levels, however, the results might probably have emanated from the fact that external debts are often associated with stringent repayment terms. They also embody other trade conditionality’s which may turn out to be counter-productive and inimical to the growth of less developed economies. However, it was recommended that, Nigeria should concentrate on inward financing of her economic growth by utilizing mostly, domestic debts

Keywords: Public Debt, External Debt, Domestic Debt, Economic Growth

DOI: 10.7176/JESD/10-24-03

Publication date: December 31^st 2019