Empirical Evidence on the Effect of Public Debt on Economic Growth in Nigeria

Abstract

The rising debt profile of developing economies like Nigeria has remained a concern for policymakers and other agents of the economy as to whether it has achieved the desired goal of economic growth in Nigeria. Thus, this study investigated the effect of public debt on economic growth in Nigeria. Relevant secondary data were sourced from Central Bank of Nigeria, Debt Management Office and World Bank Development Indicators, for the period 2010-2022. The study employed Autoregressive Distributed Lag (ARDL) methods of analysis to estimate the relationship among the variables used in the study. Results revealed that both in the short-run and long-run foreign and domestic debt had a positive significant effect on economic growth in Nigeria; while debt service and inflation exert a negative insignificant effect in the long-run and short-run. The error correction mechanism (ECM) shows that the model will adjust at the speed of 10% in short run towards the long run equilibrium. To this effect, the study recommended that borrowed funds should be optimally invested in productive ventures in Nigeria. Also, the loans should be serviced when they are due to avoid sanctions and debt overhang.