Effect of Public Debt on Economic Growth in Nigeria (1986-2016)

Abstract

This study examined the impact of public debt on economic growth in Nigeria within the period 1986 – 2016. Adopting the, Error Correction Model (ECM) to analyze the data collected. The study specifically determined the effect of external debt stock on economic growth, the effect of domestic debt stock on economic growth, the relationship between external debt service payment and economic growth and the relationship between domestic debt service payment and economic growth in Nigeria. The ECM result indicated that the changes in economic growth are explained by external debt stock, domestic debt stock, external debt service and domestic debt service was 81%. The coefficient of the ECM was natively signed (-0.690162) signed, modified the short run deviation to long run equilibrium at a speed of 69%. The overall model was significant at 5% level given the F-value of 4.004310 with the probability value of 0.006868, while the Durbin-Watson statistics of 2.81 revealed lower level of serial autocorrelation. Also, the ECM result indicated that both domestic and external debt stock were positive and significant related with economic growth. Similarly, both domestic and external debt service payment were positively significant at 5% level. It was established that public debt have positive significant impact on economic growth but cannot be used in predicting changes in each other. It was recommended that public debt should be contracted when necessary and solely for economic reasons.

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