International Journal of Research and Scientific Innovation (IJRSI) | Volume VIII, Issue V, May 2021 | ISSN 2321–2705

Public Debt and Economic Growth: the Nigerian Experience.

Chukwuemeka Nwamuo, Ph.¹, Samuel Agu, Ph.D^2
1Department of Economics, Obong University, Obong Ntak, Akwa Ibom state – Nigeria.
²Department of Banking and Finance, University of Nigeria, Nsukka, Enugu campus.

Abstract
The study investigated the impact of public debt on the economic growth in Nigeria. Annual time series data were obtained from the Central Bank of Nigeria Statistical for the period 1981 to 2019 on the variables used for the study. Unit root test was conducted using Augmented Dickey-Fuller test and Phillips-Perron test techniques and the results showed that the variables were stationary though at different levels. Co-integration test was also conducted using Johansen co-integration test method and the result showed that the variables in the model were co-integrated meaning that the variables have a long run relationship. The error correction mechanism showed that the coefficient of multiple determination (R2) in the overparameterized model was 0.890783 while it was 0.846548 in the parsimonious model. The short run regression result showed that external debt has a negative and insignificant impact on the economic growth in Nigeria. The short run result also showed that domestic debt has a positive and significant impact on the economic growth in Nigeria while credit to private sector has a negative and insignificant impact on the economic growth in Nigeria. The result from long run dynamic analysis revealed that external debt has a negative and insignificant impact on the economic growth in Nigeria while domestic debt has a positive and significant impact on the economic growth in Nigeria. The long run dynamic analysis also showed that credit to private sector has a positive and significant impact on the economic growth in Nigeria. Based on these findings, it was recommended that government should reduce the rate at which it takes external loans to finance its activities. Moreover, domestic debts should be properly managed by channeling it towards those activities that will stimulate economic growth.

Keywords: Public debt, External debt, Domestic debt, Economic growth.

1.1 Introduction

Public debt is one of the sources of revenue for the government when projected expenditure exceeds receipts and it is generally referred to as the total amount of money a government owes her citizens, other governments, agencies or organizations (Okafor and Obasi, 2011). Public debt also refers to borrowing by a government from within the country or from abroad, from private individuals or association of individuals or from banking and non-banking financial institutions. Abel and Bernanke (2005) opined that government or public debt is the total value of government bonds outstanding at any particular time however, Bade and Parking (2004) defined public