Public Debt and Economic Growth in Nigeria: A Consideration of New Evidence

Abstract

Abstract The discussion surrounding the connection between public borrowing and economic expansion has persistently endured without abating. While debt desirability proponents argue that public debt is growth-enhancing, others argue that public debt does more harm than good to the economy. In recent times, the increase in public debt in Nigeria continues to raise concerns regarding its desirability. Although several studies have been carried out in this regard, there is hardly any study that examines the public debt-growth nexus in the context of the tradable and non-tradable sectors. Second, there is hardly any study that disaggregates bank-sourced debt from non-bank-sourced debt. Thus, the study aimed to achieve two-pronged research objectives: To appraise the implications of public debt on the economic growth in the tradable sector of the Nigerian economy and to analyze the effect of public debt on the economic growth in Nigeria’s nontradable sector. This study spans from 1981 to 2020. Using the Generalized Linear Model (GLM), the following conclusions are made. Initially, different elements of public debt have varying impacts on the growth of the tradeable sector. External debt and debt obtained from non-bank sources positively drive the growth of the tradable sector. However, debt acquired from banks and the associated servicing costs hurt the growth of the tradeable sector. Furthermore, the different components of public debt have varying impacts on the growth of the non-tradable sector. Specifically, foreign debt and debt obtained from non-bank sources have a significant positive influence on the growth of the non-tradable sector. The influence of debt acquired from banks on the nontradable sector is positive but insignificant. However, similar to the tradable sector, the servicing of debt undermines the growth of the non-tradable sector. Policy insights were provided in line with the study’s findings.