Public Debt, Foreign Direct Investment and Economic Growth in Nigeria

Abstract

Purpose: 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 co-integration and error correction analysis. The short-run causal relationships among the variables are also examined using the Toda-Yamamoto’s approach to Granger non-causality test.

Method: Annual time series data spanning the period from 1981 to 2016 are utilized for the analysis.

Results: The study finds a significant negative effect of domestic debt on economic growth in Nigeria in the short-run and 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. Unidirectional causation was found only from domestic debt to economic growth. No significant causal relationships were found to exist among other variables.

Implications: In view of the empirical evidence, the study proffers as recommendations for policy consideration efforts by the government to enhance the creditworthiness of the country so as to be able to access external loans for financing 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.