Investigating the Asymmetric Impact of Public Debt on Economic Growth in Nigeria

Abdulkarim Yusuf () and Saidatulakmal Mohd ()
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Abdulkarim Yusuf: Nigeria Police Academy
Saidatulakmal Mohd: Nasarawa State University

Journal of the Knowledge Economy, 2024, vol. 15, issue 2, No 171, 9452-9481

Abstract: Abstract Governments all over the world do momentarily accumulate higher levels of public debt in order to invest in deficit spending and social protection programs to tackle the anticipated economic slump. Duced 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 are 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 has 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 stifles 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.

Keywords: Asymmetric effect; Domestic debt; Economic Growth; External debt; Nonlinear ARDL; Structural breaks; Wald test (search for similar items in EconPapers)
JEL-codes: A22 E62 F16 G18 H26 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-023-01362-1

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