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Public Debt Carrying Capacity and Debt Transmission Channels: The Nigerian Experience

Author

Listed:
  • Bassey Okon Ebi

    (Department of Economics, University of Calabar, Calabar, Nigeria,)

  • Imoke Douglas Imoke

    (Department of Economics, University of Calabar, Calabar, Nigeria)

Abstract

Public debt is good but also harmful depending on the level of accumulation and its management. Different levels of public debt is said to have varied impact on growth and since a tolerable public debt level is necessary for economic growth, then, the rising public debt, low investment and non-inclusive economic growth in Nigeria is something to worry about. This study therefore, empirically investigates the debt growth relationship in Nigeria for the period 1970 -2014. Quadratic function was employed in modeling the various relationship of interest. Error Correction Mechanism (ECM) technique was applied to estimate the models. The results showed public debt to GDP ratio was positive while the squared of Public debt to GDP was negative and statistically significant at 5 percent level in the different equations. The result supported the presence of non-linearity as the positive coefficient of public debt at the lower level and negative coefficient at higher level demonstrates an inverted U-curve in the debt growth relationship. The study further indicated that the optimal debt carrying capacity of Nigeria is 29.7 percent debt GDP ratio. This implies that, the level of borrowing in Nigeria should not exceed this threshold otherwise it will exert a negative impact on the economy. The result also suggests that, investment, interest rates and private savings are channels through which public debt impact on economic growth in Nigeria. The paper recommended that due attention should be given to existing debt level before contracting new loans to avoid the economy being thrown into debt overhan. Borrowed funds should be channeled properly to investment in order to boost economic growth.

Suggested Citation

  • Bassey Okon Ebi & Imoke Douglas Imoke, 2017. "Public Debt Carrying Capacity and Debt Transmission Channels: The Nigerian Experience," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 41-52.
    • Handle: RePEc:eco:journ1:2017-05-6
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    2. Ebi, Bassey Okon & Aladejare, Samson Adeniyi, 2022. "Oil Price Transmission, Deficit Financing and Capital Formation," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 56(1), pages 123-133.
    3. Adeniyi, Oluwatosin & Adekunle, Wasiu & Orekoya, Samuel, 2018. "Non-linear Relation between External Debt and Economic Growth in Nigeria: Does the Investment Channel Matter?," MPRA Paper 99975, University Library of Munich, Germany, revised 07 Apr 2019.

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    More about this item

    Keywords

    Public debt; Carrying capacity; Channels; Nigeria;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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