Public Debt - Growth Dynamics: The Nigerian Experience

Abstract

The broad objective of this research is to investigate the debt – growth dynamics in Nigeria using time series data from 1980 – 2010. Based on co-integration and error correction setting, the relationship between economic growth and a set of economic fundamentals is estimated. The long run equilibrium values of the integrated and co-integrated variables are estimated as presented in the results of the study. The results of the study are consistent with existing empirical literature on the debt – growth relationship. Specifically, there is evidence of a significant negative relationship between public debt burden and economic growth. Secondly, the ratio of debt service to export was found to have negative and significant effect on economic growth. It was recommended that embargo should be placed on new loan acquisition by state government and government parastatals unless where it is extremely important. In addition, concerted effort should be made towards timely loan repayment and servicing to melt down the negative effect or public debt on economic growth.

Keywords: Public debt, debt overhang, inflation, economic growth