Impact of Public Debt Stocks on Private Investment Across States in Nigeria

This study analyzes the impact of disaggregated public debt on private investment in Nigeria, drawing on the acceleration theory of investment, which posits that investment is driven by changes in output. A dichotomous logit regression model is hired to investigate whether multilateral debt, bilateral debt, banking sector debt, and non-banking sector debt enhance or do not enhance private investment. Primary data were collected through 600 well-validated and structured questionnaires distributed to privately owned firms established before 2007 across the six highly industrialized states representing Nigeria’s geopolitical zones: Lagos from the Southwest, Kano from the Northwest, Rivers from the South-South, Anambra from the Southeast, Kogi from the North Central, and Adamawa from the Northeast. A total of 430 valid responses were retrieved and analyzed alongside quarterly debt data spanning from 2007Q1 to 2024Q2 obtained from the Debt Management Office (DMO). The findings reveal considerable regional disparities in the effects of debt stocks. Multilateral debt positively influences private investment in Lagos and Kogi but has a crowding-out effect in Anambra and Rivers. Banking sector debt consistently supports private investment across most states, whereas non-banking sector debt generally exerts a negative influence. Inflation and exchange rate effects are mixed but show significant adverse impacts in select states. These results emphasize the significance of adopting state-specific and debt-type-sensitive fiscal strategies. Policy recommendations emphasize promoting productive multilateral borrowing in high-performing states, strengthening the banking sector’s role in credit intermediation, curbing reliance on non-banking sector debt, and maintaining macroeconomic stability to foster an investment-friendly environment