The Growth-Differential Impacts of Domestic and Foreign Debts in Nigeria: An Econometric Analysis
DOI:
https://doi.org/10.51137/wrp.ijarbm.536Keywords:
External Debt, Domestic Debt, GDP Growth, Debt Overhang Hypothesis, Fiscal DeficitAbstract
This study examined the impact of government debt on Nigeria’s economic growth from 1981 to 2021 using the Autoregressive Distributed Lag (ARDL) model and the Granger causality approach. The findings reveal that foreign debt exerts a significant negative effect on GDP in both the short and long run, while domestic debt shows an insignificant impact across both periods. Granger causality results indicate a unidirectional causality running from GDP growth to domestic debt, suggesting that economic expansion drives government borrowing rather than the reverse. The study further revealed that fiscal deficit and inflation (CPI) negatively affect GDP in both the short and long run, while interest rate exerts a significant positive effect, and population growth emerges as a strong positive driver of output. The study concludes that while moderate borrowing can support economic development, excessive reliance on foreign debt remains detrimental. It therefore recommends that the government adopt a prudent debt management framework, prioritise borrowing for self-liquidating and growth-enhancing projects, and encourage foreign participation in the domestic debt market to reduce financing costs and improve fiscal sustainability.
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