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Nonlinear effects of public debt on economic growth in Nigeria

Author

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  • Abdulkarim Yusuf

    (Nigeria Police Academy)

  • Saidatulakmal Mohd

    (Universiti Sains Malaysia (USM))

Abstract

The COVID-19 pandemic induced governments all over the world to momentarily accumulate higher levels of public debt in order to invest in deficit spending and social protection programs to tackle the anticipated economic slump. The Nigerian government has borrowed heavily from domestic and foreign sources in order to resolve the growing budget deficits and return the economy to a sustainable growth trajectory. Previous studies frequently made the incorrect assumption that the relationship between public debt and growth is linear and symmetric, leading to empirical results that is frequently disputed and imprecise. This study’s main objective is to examine the asymmetric impact of public debt on economic growth in Nigeria from 1980 to 2020 using the Nonlinear Autoregressive Distributed Lag method. Empirical evidence indicated that external debt have a significant positive and symmetric impact on economic growth in the long and short run, while debt service payment supporting the debt overhang hypothesis activated a symmetric effect that stifle growth. Domestic debt retarded growth asymmetrically in the short term and linearly over the long term. Foreign reserve holding, on the other hand, had an asymmetric long-run influence and a symmetric short-run impact on growth motivation. To mitigate the negative effects of unsustainable public debt, the study advocated for fiscal reforms that effectively reduce deficit financing to keep the level of government debt low and be able to respond robustly to an economic shock, improve domestic revenue generation and infrastructure spending, and strengthen governance practices and institutions.

Suggested Citation

  • Abdulkarim Yusuf & Saidatulakmal Mohd, 2023. "Nonlinear effects of public debt on economic growth in Nigeria," SN Business & Economics, Springer, vol. 3(4), pages 1-31, April.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:4:d:10.1007_s43546-023-00468-7
    DOI: 10.1007/s43546-023-00468-7
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    References listed on IDEAS

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    Cited by:

    1. Yusuf Abdulkarim, 2023. "A systematic review of investment indicators and economic growth in Nigeria," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-13, December.
    2. Bondita Robidas & Subrata Borgohain Gogoi, 2024. "Economic analysis of transportation of crude oil of Upper Assam Basin through pipeline," SN Business & Economics, Springer, vol. 4(8), pages 1-30, August.
    3. Rogers Mwesigwa & Justine Nanteza & Joseph Mayengo & Ruth Nabwami & Joshua Tumwesige, 2024. "Critical success factors for public-private partnership projects in Uganda," SN Business & Economics, Springer, vol. 4(11), pages 1-22, November.
    4. Yusuf Abdulkarim, 2023. "Reevaluating the linkage between trade openness and economic growth in Nigeria," SN Business & Economics, Springer, vol. 3(7), pages 1-33, July.
    5. Nsirimovu, Okwuwada, 2023. "Reflecting on the appetite for borrowing and the volatility of crude prices for rapid post-COVID economic recovery initiatives in Nigeria: Implications for Per capita income using a Dynamic ARDL simul," MPRA Paper 119532, University Library of Munich, Germany, revised 20 Dec 2023.

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    More about this item

    Keywords

    Asymmetric effect; Domestic debt; Economic growth; External debt; Nonlinear ARDL; Structural breaks; Wald test;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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