Determinants of external, domestic, and total public debt in Nigeria: the role of conflict, arms imports, and military expenditure

Princewill Okwoche and Eftychia Nikolaidou

No 2022-04, School of Economics Macroeconomic Discussion Paper Series from School of Economics, University of Cape Town

Abstract: Nigeria's external and domestic debt have been rising very rapidly in recent years despite the crushing weight of debt burden that almost crippled its economy in previous decades. This study examines the likely determinants of public debt in Nigeria over the period 1970-2020 with a focus on the effects of armed conflict, arms imports, and military spending. Contrary to the more common approach in previous studies of focusing only on external debt, this study employs the three separate measures of public debt, namely, government gross debt, external debt, and domestic debt. In addition to being more applicable to the case of Nigeria, this also allows us to investigate whether the drivers of public debt vary with the measure of debt used. Employing the ARDL approach to cointegration and a number of robustness checks, findings suggest that whereas conflict, arms import, and military spending have statistically positive effects on external debt, they do not have a significant effect on domestic debt. Conflict and arms import have positive effects on gross government debt which is unsurprising given that gross debt includes foreign currency denominated debt. Policy recommendations based upon these findings are discussed.

Date: 2022
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