Public Debt and Economic Growth in Nigeria: Domestic vs. External Contributions

Abstract

This study examines the relationship between public debt and economic growth in Nigeria using annual time-series data covering 1990–2023. The analysis distinguishes between domestic and external public debt to assess whether debt composition matters for long-run growth performance. After testing for stationarity using the Augmented Dickey–Fuller procedure, the study applies the Autoregressive Distributed Lag (ARDL) bounds-testing approach to investigate cointegration and to estimate both long-run and short-run dynamics within an error-correction framework. The bounds test indicates the presence of a long-run relationship among real output and the debt variables, alongside selected macroeconomic controls. The long-run estimates suggest that domestic debt is positively and statistically significantly associated with real GDP, implying that domestic borrowing may support economic performance when managed within a sustainable fiscal framework and directed toward productive uses. In contrast, external debt is statistically insignificant in the long run, indicating limited evidence of robust growth gains from foreign borrowing over the sample period. The control variables show mixed effects, with results suggesting that structural and productivity constraints may weaken the capacity of labour-force expansion and public spending to translate into higher output. In the short run, the adjustment coefficient is negative, indicating convergence toward long-run equilibrium, although the speed of adjustment is modest. Overall, the findings underscore the importance of debt composition and the need for prudent debt management to support sustainable growth in Nigeria.