The Impact of Public Debt on Economic Development of Nigeria
Abula Matthew
Department of Economics, Faculty of Social Sciences, Kogi State University, Nigeria
Ben Daddy Mordecai *
Department of Economics, Faculty of Social Sciences, Kogi State University, Nigeria
*Author to whom correspondence should be addressed.
Abstract
This study examined the impact of public debt on economic development of Nigeria using annual time series data spanning 1986 to 2014. The study employed the Augmented Dickey-Fuller test, Johansen co-integration test, Error Correction Method (ECM) and the Granger Causality test. The Johansen co-integration test results revealed the presence of a long-run relationship among the variables viz; external debt stock, domestic debt stock, external debt servicing, domestic debt servicing and economic development (proxied with GDP per capita) in Nigeria. The ECM results revealed that external debt stock and external debt servicing have insignificant negative relationship with economic development in Nigeria, however, domestic debt stock has a direct and significant relationship with economic development while domestic debt service payment was significant but inversely related to economic development in Nigeria. The lagged error correction terms in ECM 1 and ECM 2 equations are high and statistically significant judging from its high and negatively signed coefficient. The study therefore recommended that the government should reduce the level of external debt it accumulates overtime, but domestic debt accumulation would contribute significantly to the development of the economy.
Keywords: Economic development, external debt, domestic debt, error correction method