PUBLIC DEBT, FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN NIGERIA
PUBLIC DEBT, FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN NIGERIA

Summary/Abstract: The study examines the short run and the long run effects of public debt (disaggregated into external and domestic debt) and FDI on economic growth in Nigeria using the Bounds test approach to cointegration and error correction analysis. The short run causal relationships among public debt, FDI and economic growth in the country are also examined using the Toda-Yamamoto’s approach to Granger non-causality test. Annual time series data spanning the period from 1981 to 2016 are utilized for the analysis. The study finds significant negative effect of domestic debt on economic growth in Nigeria in the short run and in the long run. It also finds the growth effect of external debt to be non-significant in the short run, but positive and significant in the long run. The growth effects of FDI on economic growth are found to be non-significant in the long run and in the short run. Further evidence from the study is that trade openness negatively affects economic growth in the short run, while its long run effect is also negative, but not statistically significant. The Toda-Yamamota test for Granger causality found unidirectional causation running only from domestic debt to economic growth. In view of the empirical evidence, the study proffers as recommendations for policy consideration efforts by the government to enhance the credit worthiness of the country so as to be able to access external loans for financing of long-run growth. It further recommends some degree of restrictions on imports (especially of consumption goods) as a measure to enhance the country’s long run growth.

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