Domestic Public Debts and Economic Growth Nexus in Nigeria: Further Empirical Evidence from Causality and Structural Breaks Analyses

Aniekan O. AKPANSUNG, Matthew O. GIDIGBI

Abstract


The existing empirical studies have so far not justified any clear-cut generalization as to the causal link and impact of government domestic debt on economic growth, especially in less developed and developing countries. The actual evidence on the association between these variables does not point to any undeviating conclusion. In the current study, an attempt was made at providing further empirical evidence to the debate by examining the causal relationship between the two variables, as well as identifying the structural breaks in the variables. The study utilised Nigerian annual time-series data stretching from 1981–2018. Data were analysed using Johansen-Juselius cointegration, vector error correction modelling, Granger causality, Augmented Dickey-Fuller and Bai-Perron’s multiple structural breaks procedures.  The result provided convincing support for the existence of stable short-run and long-run relationships between public domestic debt and economic growth. The study neither found any causal relationship between public domestic debt-to-GDP ratio and real GDP growth rate nor established any lagged effect of domestic debt-to-GDP ratio on the growth rate of the gross domestic products in Nigeria. Bai-Perron’s test found strong evidence of five structural breaks in the variables, with identifiable economic and political shocks in the country during the sampled period.  The study, therefore, recommended that the Nigerian government should acquire domestic debt only for very high priority and self-sustaining projects that could contribute positively to economic growth, and reduce superfluous economic and political shocks in the country.


Keywords


Domestic public debt; economic growth; Bai-Perron structural breaks; granger causality; vector error correction model

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References


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