The impact of government debt on economic growth in Nigeria

Abstract

This study investigated the effect of government debt on Nigeria’s economic growth using annual data from 1980 to 2018 and the Autoregressive Distributed Lag technique. The empirical results showed that external debt consti­ tuted an impediment to long-term growth while its short-term effect was growth- enhancing. Domestic debt had a significant positive impact on long-term growth while its short-term effect was negative. In the long term and short term, debt service payments led to growth retardation confirming debt overhang effect. The findings suggested that the government should direct the borrowed funds to the diversification of the productive base of the economy. This will improve long-term economic growth, expand the revenue base and strengthen the capacity to repay outstanding debts when due. Fiscal improvements that encourage domestic resource mobilization, efficient debt management strategies and reliance on domestic debt rather than external debt for increased deficit financing to engender greater growth are the main contribution of the study.