The study examines the long-run relationship between domestic debt and the fiscal policy of economic growth in Nigeria in the period from 1981 to 2013 owing to government reforms in the financial system, particularly due to the establishment of the Debt Management Office (DMO) in 2000 and a new fully funded pension fund scheme, both of which resulted in a resurgence of the debt market. The issue that is often raised is the doubt regarding the stability of the debt and its likely implications for the economy, as well as the unpleasant consequences for the government embarking on consolidation. The study employs the autoregressive distributed lag (ARDL) approach and the bounds test as proposed by Narayan (2005), anchored on the perspective of the endogenous growth theory. The results reveal that although overall the adverse negative domestic debt hurts the economy, it has a positive effect on the total aggregate government revenue and economic growth in Nigeria in the research period. Furthermore, the paper develops a system to assess the speed of the adjustment mechanism coefficient in an error correction model (ECM).
If the inline PDF is not rendering correctly, you can download the PDF file here.
Abbas, S. M., & Christensen, J. E. (2010). The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets. IMF Staff Papers, 57(1), 209–255. https://doi.org/10.1057/imfsp.2009.24
Abdullah, H., & Habibullah, M. S. (2009). An Investigation on Trade Openness, Fiscal Policy and Economic Growth in Malaysia: Using an ARDL Bounds Testing Approach. International Journal of Management Studies (IJMS), 16(2), 177–197. Retrieved from http://repo.uum.edu.my/577/1/Hussin_Abdullah.pdf
Adekoya, A. F., Abdul Razak, N. A. (2017). The Dynamic Relationship Between Crime and Economic Growth in Nigeria International Journal of Management and Economics, 53(1), 47–64. https://doi.org/10.1515/ijme-2017-0004
Amassoma, D. (2011). External Debt, Internal Debt, Economic Growth and Investment in Nigeria Using Causality Approach. Current Research Journal of Social Sciences, 3(4), 320–325. Retrieved from http://maxwellsci.com/print/crjss/v3-320-325.pdf
Arrow, K.J., Bernheim, B.D., Feldstein, M.S., McFadden, D.L., Poterba, J.M., Solow, R.M. (2011). 100 Years of the American Economic Review: The Top 20 Articles. American Economic Review, 101(1), 1–8. https://doi.org/10.1257/aer.101.1.1
Baldacci, E., & Kumar, M. (2010). Fiscal Deficits, Public Debt, and Sovereign Bond Yields. IMF Working Papers No. 10/184, 1–28.
Beaugrand, P., Loko, B., & Mlachila, M. (2002). The Choice Between External and Domestic Debt in Financing Budget Deficits: The Case of Central and West African Countries. International Monetary Fund, No.02/79.
Eichengreen, B., & Hausmann, R. (2007). Currency Mismatches, Debt Intolerance, and the Original Sin: Why They Are Not the Same and Why It Matters. In Capital controls and capital flows in emerging economies: Policies, practices and consequences. Sebastian Edwards, (ed), 1–51. University of Chicago Press. Retrieved from https://www.nber.org/chapters/c0150.
Foncerrada, L. (2005). Public Debt Sustainability. Notes on debt sustainability, development of a Domestic Governmet Securities Market and Financial Risks. Análisis Económico, 20(44), 259–272, Retrieved from http://www.redalyc.org/articulo.oa?id=41304409#
Gale, W. G., Orszag, P. R., Brainard, W., Cumby, R., Dickens, B., Elmendorf, D., & Russek, F. (2004). Budget Deficits, National Saving, and Interest Rates. Brookings Papers on Economic Activity, 1–83. Brookings Institution Press . https://doi.org/10.1353/eca.2005.0007
Hussein, K. A., & Thirlwall, A. P. (1999). Explaining Differences in the Domestic Savings Ratio Across Countries: A Panel Data Study. The Journal of Development Studies, 36(1), 31–52. https://doi.org/10.1080/00220389908422610
International Monetary Report. (2014). Nigeria IMF Country Report No. 14/103. Washinton DC. pp. 103.
Hunt, S. D. (2012). Understanding the Drivers of Economic Growth: Grounding Endogenous Economic Growth Models in Resource-Advantage Theory. Contemporary Economics, 6(4), 4–8. https://doi.org/10.5709/ce.1897-9254.62
Jawadi, F., Mallick, S.K., & Sousa, R.M. (2011). Fiscal Policy in the BRICs. Universidade do Minho. Nucleo de investigacao empolicas Economicas. Retrieved from http://hdl.handle.net/1822/12792.
Muhdi, & Sasaki, K. (2009). Roles of External and Domestic Debt in Economy: Analysis of a Macroeconometric Model for Indonesia. Interdisciplinary Information Sciences, 15(2), 251–265. https://doi.org/10.4036/iis.2009.251
Moss, T. J., Pettersson, G., & Van de Walle, N. (2006). An aid-institutions paradox? A review essay on Aid Dependency and State Building in Sub-Saharan Africa. Center for Global Development Working Paper, 74, 1–28. https://doi.org/10.2139/ssrn.860826
Okonjo-Iweala, N., Soludo, C.C., & Muhtar, M. (2002). Managing Nigeria’s Debt: Institutional and Governance Aspect. In The Debt Trap in Nigeria: Towards a Sustainable Debt Strategy, Africa World Pr. 288 p.
Okonjo-Iweala, N., & Osafo-Kwaako, P. (2007). Nigeria’s Economic Reforms: Progress and Challenges. Brookings Global Economy and Development Working Paper (6). https://doi.org/10.2139/ssrn.1080251
Otani, I, & Villanueva, D. (1989). Theoretical Aspects of Growth in Developing Countries: External Debt Dynamics and the Role of Human Capital. IMF Staff Papers, 36(2), 307–342. https://doi.org/10.2307/3867145
Pahlavani, M., Wilson, E., & Worthington, A.C. (2005) Trade-GDP Nexus in Iran: An Application of the Autoregressive Distributed Lag (ARDL) Model. Faculty of Commerce-Papers, 2(7). 1158–1165. https://doi.org/10.3844/ajassp.2005.1158.1165
Takashima, K., Kato, K., & Ogibayashi, S. (2014). Analysis of the Influence of Firm’s Financing Strategies for Investment on GDP in an Agent-Based Economic System. Information (Japan), 17(6), 2583–2603.
Thumrongvit, P., Kim, Y., & Pyum, C. (2013). Linking the Missing Market: The Effect of Bond Markets on Economic Growth. International Review of Economics and Finance, 27, 529–541. https://doi.org/10.1016/j.iref.2013.01.008