Effect of Public Debt on the Economic Growth of Nigeria (1986 – 2020)

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International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue V, May 2022 | ISSN 2454–6186

Effect of Public Debt on the Economic Growth of Nigeria (1986 – 2020)

Chima Kenneth Anachedo, Amalachukwu Chijindu Ananwude*, Dr Felix Nwaolisa Echekoba and Andrew Izuchukwu Nnoje
Department of Banking and Finance, Nnamdi Azikiwe University, Anambra State, PMB 5025, Awka, Nigeria
* Corresponding author

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Abstract: This study examined the effect of public debt on economic growth in Nigeria. Specifically, the effect of domestic debt and external debt on real gross domestic product was ascertained. This study applied a test of causation to determine the effect of public debt on economic growth in Nigeria from 1986 to 2020. The secondary data were obtained from the Central Bank of Nigeria (CBN) statistical bulletin of various issues. The dependent variable is economic growth measured by real gross domestic product, while the independent variable is public debt measured by domestic debt and external debt. The short-run relationship depicted that domestic debt has insignificant negative relationship with economic growth in Nigeria, whereas external debt has positive significant relationship with economic growth. With respect to the effect of domestic debt and external debt on economic growth, the granger causality test revealed that there is a bidirectional causal relationship between domestic debt and economic growth in Nigeria. This is to say that domestic debt has significant effect on economic growth. Similarly, it was also found that economic growth exerts significant effect on domestic debt. Though external debt would not be considered as an evil fiscal policy arrangement of the government, external loans contracted should be properly and efficiently channeled to capital expenditure which improves the manufacturing sector capacity, generates employments and reduced poverty which ultimately result in the acceleration of the pace of economic growth.

Keywords: Public debt; economic growth, domestic debt, external debt, gross domestic product.

I.INTRODUCTION

Public debt has continued in an upward trend, as experienced by many developing countries of the world, and is now attracting global attention. Public debt is been incurred mostly by borrowing, especially when the government is unable to raise enough revenue locally to carry out its obligation to its citizens. This implies that whenever there is a budget deficit most times the government resorts to borrowing in other to bridge the gap/shortfalls. Chinanuife, Eze, and Nwodo (2018) posits that the practice of borrowing is not bad if borrowed funds are used judiciously. Following the fall in oil prices, variation in the exchange rate, etc., which has brought adverse effects to some developing nations of the world such as Nigeria, it is therefore imperative to reflect on the economic implication of the country’s growing debt record, and it is a very important issue which needs broad public debate. Therefore, increasing levels of the public debt of a country can be harmful to the growth of the economy of