Effects of Domestic Debt on Economic Growth of Nigeria

Effects of Domestic Debt on Economic Growth of Nigeria

Author by Dr. Andy Okwu

Journal/Publisher: Journal Of Strategic And International Studies

Volume/Edition: 9

Language: English

Pages: 44 - 60

Abstract

Persistent increases in stock of domestic debt in Nigeria have raised concerns about effects of such debt stock on growth of the economy. This study employed econometric methodology to examine the phenomenon of domestic debt in relation to growth of the Nigerian economy for the period 1990-2010. The objective was to establish the effect of the phenomenal debt stock increases on economic growth in Nigeria during the study period. The major tool of analysis was multiple regression model premised on theorised functional relationship between economic growth and domestic debt stock. Gross domestic product (GDP) entered the model as response variable and proxy for economic growth, domestic debt stock (DDS), expenditure on debt servicing (EDS) and domestic credit to the economy (DCE) were considered as the causal variables, with interest rate {INT) as the moderating variable. Data used for analysis were obtained from Statistical Bulletin of the Central Bank of Nigeria. Diagnostic tests were conducted to ascertain Stationarity, Co-integrating and Stability features of the data series. Facilitated with Econometric Views version7 (EViews7) statistical software, the LS estimation techniques were employed to obtain estimates of model parameters. The estimated model was subjected to evaluation. The results revealed that while those domestic debt components exerted significant positive effects on economic growth, interest rate exerted insignificant negative effect. On the aggregate, the variables jointly exerted significant effect, and highly explained variations in economic growth during the study period. Consequently, the study concluded that domestic debt enhanced growth during the period, and, thus, recommended that growth-oriented strategies should be top priority in domestic debt and its dynamics.


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