Impact of Public Debt on Economic Growth in Nigeria (1990 to 2019)

Abstract

This study examines the impact of public debt on economic growth in Nigeria using annual time series data from 1990 to 2019 collected from Central of Nigeria statistical bulletin. The variables are Real GDP, public debt, Inflation, debt to GDP ratio, debt servicing to GDP ratio, and exchange rate. Empirical analysis was conducted using Augmented Dickey Fuller unit root test to check for stationarity. Johansen Cointegration test was used to determine long run relationship and Vector Error Correction Model to check for short run and long run impact of public debt on economic growth. Empirical results showed that the impact of public debt on economic growth was negative and significant in the long run. The impact of public debt on economic growth was negative but insignificant in the short run. In addition, the impact of ratio of debt servicing to GDP was significant and negative in the short and long run. There was no causality between public debt and economic growth. The study recommends that public authorities in Nigeria should reduce reliance on public debt and instead move towards increasing revenues through diversification of the export base of the economy and expanding the tax net. The study also recommends strengthening public institutions so that revenues collected, in the form of debt or other means can be adequately utilized on investments that are efficient.