Empirical Investigation of the Impact of Public Debt on Economic Growth in Nigeria

Public debt is the amount of money that is borrowed by the government of a country from individuals, private and public corporations residing inside or outside the country. Debt is incurred by a government when there is a surplus expenditure over revenue and insufficient savings to carry out productive activities that foster economic growth and development. This study examined the impact of public debt on economic growth in Nigeria from 1980-2021. The study utilized the Autoregressive Distributed Lag bounds model to co-integration for analysis. The results showed that external and domestic debts had negative impacts on economic growth in the short-run, but exerted a positive and insignificant impact on economic growth in the long-run. In addition, the result of the first hypothesis showed that there is a significant relationship between public debt and economic growth in Nigeria in the short-run, while the result of the second hypothesis revealed that there is no significant relationship between public debt and economic growth in Nigeria in the long-run. Similarly, the result of the third hypothesis showed that there is no significant relationship between inflation and economic growth in Nigeria. The study recommends that public borrowing should be tied to specified productive sectors of the economy that would increase growth in the long-run and enhance the payment of the debts to avoid leaving debt burden to the next generation. Also, government should spend borrowed funds on capital goods and infrastructure that could increase productivity rather than recurrent expenditure that potentially leads to inflation. Furthermore, the government should diversify the sources of revenue by increasing effort on taxation, export goods and promote import substitution strategies that will enhance the consumption of domestic products and reduce reliance on debt to finance its budget.