Public debt and economic growth: What we know today about the Nigerian economy tomorrow

Abstract

With the rising trend in Nigeria’s debt profile, this paper investigated public debt and its potential consequence on economic growth through its impact on investment. The study cut across 1981 to 2019 with data from World Bank Development Indicators (WDI) and Central Bank of Nigeria Statistical Bulletin. The Phillips-Perron unit root tested for stationarity, while the study estimated the model by adopting the Autoregressive distributed lag (ARDL) model. The long-run estimated results report that external debt and investment have a strong positive link with economic growth, while domestic debt and external debt service are inversely related to growth. In ascertaining the threshold level of investment, the estimated result suggests that investment of domestic debt should not fall below 25.41% to avoid an economic downturn. However, investing more than 24.55% of external debt will leave the economy in shambles. Further findings suggest that increased investment of domestic debt and external loans in Nigeria is a blessing and curse, respectively. Therefore, it is recommended that external debt investment be closely monitored to ensure optimal use so that such debts would not be diverted to personal gain.