PUBLIC DEBT, INSTITUTIONAL QUALITY AND ECONOMIC GROWTH: EVIDENCE FROM NIGERIA

Abstract

The rising stock of public and lack of steady improvement in macroeconomic indicators continued to generate disagreement among academics, policy makers and public analysts. This study examined the effects of public debt and institutional quality on the growth of Nigerian economy. Secondary data spanning 1981 to 2021 sourced from World Development Indicators, World Governance Indicators, Debt Management Office and Central Bank of Nigeria statistical bulletin. Autoregressive distributed lag was employed with real gross domestic product as the dependent variable while public debt, gross capital formation, labour force, exchange rate and institutional quality were the independent variables. The results showed evidence of long run equilibrium relationship among the variables. Also, findings revealed that in the long run domestic public debt established a positive significant influence on economic growth whereas external public debt had a negative significant impact on economic growth. Furthermore, institutional quality had significant negative effect on economic growth in the long run with no such evidence shown in the short run. Therefore, the study recommends that government should consider alternative sources of funding to external debt while institutional quality should be strengthened.