IMPACT OF PUBLIC DEBT ON ECONOMIC GROWTH IN NIGERIA

Abstract

This study examined the impact of public debt on economic growth in Nigeria. Specifically, the study evaluates the impact of external debt, external debt service payment and domestic debt on the GDP of Nigeria spanning 1981 to 2020. The ex-post facto research design was adopted for this study. Time series data were obtained from the World Development Index (WDI) and the Central Bank of Nigeria (CBN). To test for stationarity of the time series data, the Augmented Dickey Fuller unit root test (ADF) was carried out for all the variables and the results were confirmed using the Philips Perron Unit root test. The study applied the Autoregressive Distributed Lagged model as econometric methodology in order to investigate the long-run and the short run relationship between public debt and economic growth in Nigeria. Findings of the study revealed that the time series data became stationary at first difference while the coefficients of external debt and domestic debt had positive and significant impact on economic growth in Nigeria and on the flip, external debt service payment had a negative and significant impact on economic growth of Nigeria in the long run. The implications of these findings are that, the more the public borrow externally and internally to finance capital projects, the more the economy will grow ceteris paribus. On the other hand, the servicing of debts and interest repayment on same mars economic growth in Nigeria. The Study therefore recommends that; borrowed funds should be adequately utilised for productive and profitable projects in Nigeria. Furthermore, Nigeria should seek debt forgiveness to avoid continuous debt servicing and interest repayment as well as the spreading of more credit facilities to mop up higher powered money (money out of control of the financial system) from the economy.