Domestic Debt and Economic Growth Nexus: The Nigeria Evidence
Keywords:
Domestic Debt, Federal Government Domestic Debt, Government ExpenditureAbstract
Propelled by the need to promote growth in the economy, the study evaluates the effects of Domestic Debt and Economic Growth in Nigeria over the period 1981 - 2019. Secondary data were sourced from the Central Bank of Nigeria Statistical Bulletin. Domestic Debt is captured using indicators such as Federal Government Domestic Debt, Domestic Debt Servicing. Government Expenditure and Lending, while Economic growth was proxy by Gross domestic product in Nigeria. The study employed the Stationarity Test, Johansen Co-integration Test and the Parsimonious error correction model in evaluating the nature of the prevailing relationship between the underlying variables. The result revealed that the Federal Government Domestic Debt, and Domestic Debt Servicing exhibited positive and significant influence on economic growth in Nigeria. While Government expenditure is seen to have negative and insignificant influence on Gross domestic product. Lending rate showed positive and insignificant influence on economic growth in Nigeria within the period of this study. In light of the observed findings, the study recommends that projects to be financed with government borrowing should be properly appraised and their technical feasibility, financial viability and economic desirability ascertained before the funds are committed. Government should improve more on capital expenditures such as infrastructures since they are the key to growth and will reduce the cost of production and investment. Also, government and the Debt Management Office should draw up guidelines to limit the growth of future domestic debt. Effective mechanism should be put in place to ensure that any new borrowing is judiciously utilized to contribute to economic growth.
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