Impact of Public Debts Accumulation on Economic Growth in Nigeria: Issues and Implications for Economic Recovery
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Published:
May 22, 2023
Keywords:
Autoregressive Distributed Lag Model, Chow Breakpoint Test, Domestic Debt, Economic growth, External Debt, Public debt
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Abstract
This paper interrogates the rationale behind federal government continued reliance on Keynesian’s fiscal policy prescriptions of deficit financing as a way of spurring sustained economic growth and development in Nigeria, especially when such ideology seems to contrast sharply with the realities of dwindling economic growth indices. In particular, this study investigates the extent both external debt and domestic debt impact on economic growth in Nigeria. Multiple regression method was adopted while Autoregressive distributed lag (ARDL) model was the main technique used in the analysis. The results of the ARDL model demonstrate that external debt (LEXD) and domestic debt (LDD) have a negative impact on LGDP. However, while external debt reveals a significant effect, domestic debt (LDD) has an insignificant impact on LGDP. Thus, the study recommends that government should discontinue the use of external debt to finance budget deficit in the economy, but look inward through aggressive internal revenue generation as well as embrace economic diversification policies, coupled with a drastic cut down on cost of governance in Nigeria.
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How to Cite
Eze, Titus Chinweuba, and Nnaemeka Ole Ukwueni. 2023. “Impact of Public Debts Accumulation on Economic Growth in Nigeria: Issues and Implications for Economic Recovery”. ABUAD Journal of Social and Management Sciences 4 (1), 105-29. https://doi.org/10.53982/ajsms.2023.0401.07-j.
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References
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Central Bank of Nigeria (2021). Statement of account
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Chowdhury, A. R. (2001). External debt and growth in developing countries: a sensitivity and causal analysis. WIDER Discussion Paper No. 2001/9
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Isaac, S., & Rosa, G. (2019). Public debt, public investment and economic growth in Mexico. International Journal of Financial Studies, 4(6), 1-14.
John, P. A., & Muhammad, A. Q. (2013). System dynamics model of debt accumulation in developing countries. African Journal of Economic and Management Studies, 4(3), 317-337.
Kelbesa, A. M. (2015). The laffer curve and the debt-growth link in low-income Sub-Saharan African economies. Journal of Economic Studies, 42(5), 878–892.
Lucky, E. U., & Godday, O. O. (2017). The Nigeria debt structure and its effects on economic performance. International Journal of Business and Management Review, 5(10), 79-88
Muritala, T. A. (2012). Empirical analysis on impact of external debt on economic growth in Nigeria. Acta Universitatis Danubius, 8(6), 1-13.
Naeem, A. (2015). Is public debt hindering economic growth of the Philippines? International Journal of Social Economics, 42(3), 202–221.
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Nassir, U. H., & Wani, H. K. (2016). An evaluation of relationship between public debt and economic growth: A study of Afghanistan. Munich Personal RePEc Archive, 75538, 1-19
Ogiemudia, A. O. & Ajao (2012). Foreign debt management and the development of Nigeria economy. Review of Economic and Finance, Academic Research Centre of Canada
Oke, M. L., & Sulaiman, L. A. (2012). External debt, economic growth and investment in Nigeria. European Journal of Business and Management, 4(11), 82-102.
Okoye, L. U., Modebe, N. J., Erin, O. A., & Evbuomwan, G. O. (2013). Effect of external debt on economic growth: Evidence from Nigeria. Sustainable Economic Growth, Education Excellence and Innovation Management through Vision 2020: 4046-4058.
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Panagiotis, P. (2020). The effect of government debt and other determinants on economic growth. The Greek experience. Economies, 6(10), 1-19.
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Pesaran, H. M., Shin, Y.,& Smith, R. J. (2001). Bound testing approaches to the analysis of long-run relationships. Working Paper, University of Cambridge, 65-77.
Precious, L. N. (2015). Effects of public debt on economic growth in Swaziland. International Journal of Business and Commerce, 5(1), 1-24.
Stephen, E. A (1999). Impact of national savings on economic growth in Nigeria (1990-2015). IIARD International Journal of Economics and Business Management, 3(4), 28-60.
Somkele, A.K (2022). Much ado about nothing?: Reviewing Nigeria’s debt situation: The Republic,
Sulaiman, L. A., & Azeez, B. A. (2012). Effect of external debt on economic growth of Nigeria. Journal of Economics and Sustainable Development, 3(8), 71-83.
Tajudeen, E. (2012). Public debt and economic growth in Nigeria: Evidence from Granger causality. American Journal of Economics, 2(6), 101-106.
Uma, K., Eboh, F., & Obidike, P. (2013). Debt and debt service: Implications on Nigerian economic development. Asian Journal of Social Sciences and Humanities, 2(2), 42-54.
Victor, O., & Christopher, E. (2016). Public debt and economic growth in Ghana. African Development Review, 28(1), 116–126
Waliu, O. S., Sallahuddin, H., & Muhammad, A. N. (2018). The nexus between external debt, corruption and economic growth: evidence from five SSA countries. African Journal of Economic and Management Studies, 1, 1-17.
Abula, M., & Ben, D. M. (2016). The impact of public debt on economic development of Nigeria. Asian Research Journal of Arts & Social Sciences, 1(1), 1-16
Ahuja, H.L (2008). Modern economics: 6th Edition, S. Chand & Company LTD. Ram Nagar, New Delhi: India.
Alejandro, D. J., & Ileana, R. J. (2017). The impact of government debt on economic growth: An overview for Latin America. Department of Economics, University of Perugia (IT), working paper, 28, 1-11.
Ajayi, L. B., & Oke, M. O. (2012). Effect of external debt on economic growth and development of Nigeria. International Journal of Business and Social Science, 3(12), 18-29.
Anyanwu, J. C., & Andrew, E. O. E (2004). Domestic debt and economic growth: The Nigerian case: Retrieved from: https://www.researchgate.net/ publication/263662283, page 1-26.
Burnside, C., & D. Dollar, (2000). Aid, policies, and growth. American Economic Review, 8, 847-68.
Central Bank of Nigeria (2021). Statement of account
Christabell, M. (2013). The relationship between public debt and economic growth in Kenya International Journal of Social Sciences and Project Planning Management, 1(1), 1-21.
Chowdhury, A. R. (2001). External debt and growth in developing countries: a sensitivity and causal analysis. WIDER Discussion Paper No. 2001/9
Elom-Obed, O.F., Odo, S. I., Elom, O. O., & Anoke, C. I. (2017). Public debt and economic growth in Nigeria. Asian Research Journal of Arts & Social Sciences, 4(3), 1-16.
Esther, O. A., Folorunso, S. A., & Felix, O. A (2008). The impact of Nigeria’s external debt on economic development. International Journal of Emerging Markets, 3(3), 285-301.
Fan, E. X (2007). Pakistan’s public debt: a brief overview, PRM policy note, series 1. Asian Development Bank, Islamabad.
Harris, R., & Sollis, R. (2003). Applied time series modeling and forecasting: West Sussex: Wiley
Inyiama, O.I. (2013). Does inflation weaken economic growth? Evidence from Nigeria. European Journal of Accounting Auditing and Finance Research, 1(4), 139-150.
Isaac, S., & Rosa, G. (2019). Public debt, public investment and economic growth in Mexico. International Journal of Financial Studies, 4(6), 1-14.
John, P. A., & Muhammad, A. Q. (2013). System dynamics model of debt accumulation in developing countries. African Journal of Economic and Management Studies, 4(3), 317-337.
Kelbesa, A. M. (2015). The laffer curve and the debt-growth link in low-income Sub-Saharan African economies. Journal of Economic Studies, 42(5), 878–892.
Lucky, E. U., & Godday, O. O. (2017). The Nigeria debt structure and its effects on economic performance. International Journal of Business and Management Review, 5(10), 79-88
Muritala, T. A. (2012). Empirical analysis on impact of external debt on economic growth in Nigeria. Acta Universitatis Danubius, 8(6), 1-13.
Naeem, A. (2015). Is public debt hindering economic growth of the Philippines? International Journal of Social Economics, 42(3), 202–221.
NBS (2022). Nigerian Bureau of statistics: 36th edition, July 29th 2022
Nassir, U. H., & Wani, H. K. (2016). An evaluation of relationship between public debt and economic growth: A study of Afghanistan. Munich Personal RePEc Archive, 75538, 1-19
Ogiemudia, A. O. & Ajao (2012). Foreign debt management and the development of Nigeria economy. Review of Economic and Finance, Academic Research Centre of Canada
Oke, M. L., & Sulaiman, L. A. (2012). External debt, economic growth and investment in Nigeria. European Journal of Business and Management, 4(11), 82-102.
Okoye, L. U., Modebe, N. J., Erin, O. A., & Evbuomwan, G. O. (2013). Effect of external debt on economic growth: Evidence from Nigeria. Sustainable Economic Growth, Education Excellence and Innovation Management through Vision 2020: 4046-4058.
Okwu, A. T., Obiwuru, T. C., Obiakor, R. T., & Oluwalaiye, O. B. (2016). Domestic debt and economic growth in Nigeria: Data-based evidence. Greener Journal of Economics and Accountancy, 5(1), 1-12.
Panagiotis, P. (2020). The effect of government debt and other determinants on economic growth. The Greek experience. Economies, 6(10), 1-19.
Peter, A. O., & Ferdinand, I. O. (2016). Nigeria’s debt burden and development tangle. Global Journal of Management and Business Research: B Economics and Commerce, 16(6), 32-42 Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modeling approach to cointegration analysis. Chapter 11 in S. Strom (ed.), Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge University Press, Cambridge. (Discussion Paper version)
Pesaran, H. M., Shin, Y.,& Smith, R. J. (2001). Bound testing approaches to the analysis of long-run relationships. Working Paper, University of Cambridge, 65-77.
Precious, L. N. (2015). Effects of public debt on economic growth in Swaziland. International Journal of Business and Commerce, 5(1), 1-24.
Stephen, E. A (1999). Impact of national savings on economic growth in Nigeria (1990-2015). IIARD International Journal of Economics and Business Management, 3(4), 28-60.
Somkele, A.K (2022). Much ado about nothing?: Reviewing Nigeria’s debt situation: The Republic,
Sulaiman, L. A., & Azeez, B. A. (2012). Effect of external debt on economic growth of Nigeria. Journal of Economics and Sustainable Development, 3(8), 71-83.
Tajudeen, E. (2012). Public debt and economic growth in Nigeria: Evidence from Granger causality. American Journal of Economics, 2(6), 101-106.
Uma, K., Eboh, F., & Obidike, P. (2013). Debt and debt service: Implications on Nigerian economic development. Asian Journal of Social Sciences and Humanities, 2(2), 42-54.
Victor, O., & Christopher, E. (2016). Public debt and economic growth in Ghana. African Development Review, 28(1), 116–126
Waliu, O. S., Sallahuddin, H., & Muhammad, A. N. (2018). The nexus between external debt, corruption and economic growth: evidence from five SSA countries. African Journal of Economic and Management Studies, 1, 1-17.