The Impact of Domestic Debt on Economic Growth of Nigeria

Abstract

This paper empirically examined the impact of domestic debt on economic growth of Nigeria for the period 1985-2014 using annual time series data on variables as gross domestic product, treasury bonds, development stocks, federal government of Nigeria bonds and interest rate, sourced from the Central Bank of Nigeria Statistical Bulletin, 2014. The study employed the Augmented Dickey-Fuller Unit Root test and the Vector Autoregression method of analysis. The findings of the multivariate Vector Autoregression model revealed that domestic debt plays an important role in the growth process of Nigerian economy judging from the high R2 (0.983616) and the statistically significant F-value (102.0618) of the gross domestic product regression. The variance decomposition analysis revealed that federal government of Nigeria bonds exert more pressure on the growth rate of gross domestic product in Nigeria. This was followed by shocks received from treasury bonds, while development stocks and interest rate contributed the least to shocks in gross domestic product. The findings of the impulse response function in support of the variance decomposition analysis showed that economic growth responded positively to shocks in federal government of Nigeria bonds and negatively to shocks in treasury bonds throughout the ten year period. Meanwhile, the response of gross domestic product to shocks in development stocks and interest rate was unstable. The study therefore recommended that government should resort to acquiring funds majorly through federal government of Nigeria bonds since the federal government of Nigeria bonds have a highly significant positive impact on economic growth.