Dynamics of Public Debt and Economic Growth in Nigeria

Agu Edward O ,Ogol Callistus ,Ojimadu Pascal Kem

doi:10.7176/jesd/10-24-03

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

Highlights

Debt, arguably, remains one of the major economic challenges facing governments in low income countries due to their persistence budget deficit and this has continued to attract the attention of international financial institutions, and bilateral lenders
For each unit change in EXDBT, and DDEBT (- 3.44), and (- 3.34) respectively of such change is transmitted to economic growth in the Country
Government expenditure and exchange rate has a positive impact on economic growth in Nigeria, all these is seen in the coefficient of the variables in table 4.2

Summary

Introduction

Remains one of the major economic challenges facing governments in low income countries due to their persistence budget deficit and this has continued to attract the attention of international financial institutions, and bilateral lenders. Ugwu and Nzewi (2016) evaluated the effect of external debt on economic growth parameters in Nigeria They employed ex post facto research design and the result show that positive relationship exists among external debt and economic growth parameter (GDP, exchange rate, capital expenditure). Gap in Literature Summarily, the reviewed literature disclosed that most of the authors had used many parameters to proxy public debt but all the studies reviewed in Nigeria, were carried out using ordinary least square (OLS) approach and Johansson cointegration test, and Error correction with scanty work on Vector Auto Regression (VAR) approach of analyzing the impact of public debt on economic growth, like, Adeniran, Azeez and Aremu (2016), Ugwu and Nzewi (2016), Ugwuegbe, Okafor and Azino (2016), Monogbe (2016) among others with very few applying other econometrics method of analysis. 3.2 Diagnostic Test of the Model Diagnostic test of the model were carried out using, unit root test, co integration, error correction, VAR, coefficient of multiple determination, R2 analysis of variance and Durbin Watson statistics

Unit Root Test

The Error Correction Model

Vector Autoregressive Model

Justification of the Model

Findings

Data Presentation and Analysis