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Economy 
Vol. 7, No. 2, 119-127, 2020 

ISSN(E) 2313-8181/ ISSN(P) 2518-0118 
DOI: 10.20448/journal.502.2020.72.119.127 

© 2020 by the authors; licensee Asian Online Journal Publishing Group 

    
 

 
 
 
The Nigeria’s Debt- Growth Nexus: A Blessing or Burden? 

 
Christian Gbarawae NWIKINA1 

Ledum Moses GBARATO2 
Joseph Jim MEEKOR3 
  

( Corresponding Author) 
 
1Department of General Studies, School of Foundation Studies, Kenule Beeson Saro-Wiwa Polytechnic, Rivers 
State, Nigeria. 

 
2Department of Finance & Banking, Faculty of Management Science, University of Port Harcourt, Nigeria. 

 
2Department of Economics, Ignatius Ajuru University of Education, Port Harcourt, Nigeria. 

 

 
Abstract 

The option of leveraging on recommendable borrowings does not only stimulate favourable 
economic growth but also offers meaningful upsurge in the financial position of parties involved. 
It is on this premise that prompted the essence to examine the Nigeria’s debt- growth nexus: 
whether a blessing or burden, for the period 1981 to 2019. Secondary data from CBN statistical 
Bulletin were employed in the study. Using the Error Correction Model, the results reveal that, 
although debt servicing exerts negative relationship with economic growth, it is obvious that debt 
financing in Nigeria is a blessing as external and domestic debt stocks all exert positive influence 
on economic growth. However, only domestic debt stock is efficient enough to spur economic 
activities, which suggests that prudent employment of domestic debt which is not affected by 
exchange rate is a strong catalyst for rapid increase in economic activities in Nigeria. Therefore, 
having identified domestic debt as the linchpin of economic growth in Nigeria, the study 
recommends the choice for internally borrowed fund as the best benign financing option as well as 
its optimal utilization for meaningful commensurate economic activities. Also, recommendable 
threshold point of borrowing should strictly be adhere to, in order to avoid landing the economy 
into a state of onerous experience. 

 
Keywords: External debt, Domestic debt, Debt servicing, Nominal GDP, Nigeria. 

 
Citation | Christian Gbarawae NWIKINA; Ledum Moses 
GBARATO; Joseph Jim MEEKOR (2020). The Nigeria’s Debt- 
Growth Nexus: A Blessing or Burden?. Economy, 7(2): 119-127. 
History:  
Received: 21 October 2020 
Revised: 17 November 2020 
Accepted: 30 November 2020 
Published: 14 December 2020  
Licensed: This work is licensed under a Creative Commons 

Attribution 3.0 License  
Publisher:  Asian Online Journal Publishing Group 
 

Acknowledgement: All authors contributed to the conception and design of 
the study. 
Funding: This study received no specific financial support. 
Competing Interests: The authors declare that they have no conflict of 
interests. 
Transparency: The authors confirm that the manuscript is an honest, 
accurate, and transparent account of the study was reported; that no vital 
features of the study have been omitted; and that any discrepancies from the 
study as planned have been explained. 
Ethical: This study follows all ethical practices during writing.   

 

 

Contents 
1. Introduction .................................................................................................................................................................................... 120 
2. Literature Review .......................................................................................................................................................................... 120 
3. Research Methodology ................................................................................................................................................................. 123 
4. Presentation and Analysis of Result .......................................................................................................................................... 125 
5. Concluding Remarks and Policy Recommendations .............................................................................................................. 126 
References ............................................................................................................................................................................................ 126 
 

 
 
 
 

 

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Contribution of this paper to the literature 
As a contribution to knowledge, this paper unveils that output level of goods and services in Nigeria has 
been greatly sustained by domestic debt employed. As it portrays efficient influence unlike external debt 
that favoured the economy marginally. 

 
1. Introduction 

Standard of living, level of employment and output level of goods and services in a country are greatly 
determined by the country’s management of public finance (Rafindadi & Musa, 2019). An efficient revenue 
generation sources as well as its allocation and utilization, lubricate economic activities, a sine qua non for 
economic growth and development.  

However, differences in natural endowment, technology, human capital development and value system have 
emanated the country-ranking into developed, developing and underdeveloped economies, where the less 
counterparts aspire to gain higher economic prominence. This astute quest alongside the need to accommodate 
increasing population with its attendant challenges necessitates incessant increase in public expenditure.  
Consequently, subjecting the deficit-economic countries, mostly, the underdeveloped and developing countries to 
greatly rely on the surplus-economic countries for aids, grants and loans in financing public expenditures (Adepoju, 
Salau, & Obayelu, 2007; Fasoye, 2018). 

Therefore, Nigerian being an emerging economy is not left out in both internal and external borrowing in 
order to finance her public expenditures. Although, public borrowing is not bad, especially when there is prudent 
utilization to create productive assets and contagious economic-benefiting environment (Ngassam, 2000), however, 
on the contrary, effect of public debt becomes devastating not only to present generation but also unborn 
generation. Effort on this thoughtful consequence has led to the establishment of Debt Management Office in 
Nigeria in 2000, and vested the responsibility of overseeing, management and servicing of bilateral and multilateral 
debts, operating under the ministry of finance (Rahman, Adeola, Abiodun, & Tolulope, 2010).  

Trend of activities have revealed that Nigeria has being in long-term debt experience over the years (Festus & 
Saibu, 2019). However, financing ever increasing public expenditures has been a major challenge to government 
and financial managers in recent times, because of the deficits in government budgets. As observed by Debt 
Management Office (2019), domestic debt of Nigeria has risen by 3.9% from N15.04trn ($49.14bn) as at 30th June, 
2017 to N15.63trn ($51.13bn) at the end of the second quarter of 2019, making ratio of total debt to Federal 
government revenue trigger from 158.4% in 2015 to 258.8% in 2016. Although declined slightly to 246.8% and 
215% in 2017 and 2018 respectively, however, in 2019, it rose up to 227%. Also, Director General of Chamber of 
Commerce Muda Yusuf, asserted that at present, Nigeria spends over N3 trillion naira to service its debt, a great 
opportunity cost of many public developmental projects (Yusuf, 2020). The trend of these debts and their 
management suggest a robbery of sustainable economic utopia, capable of reducing the standard of living, crippling 
employment opportunities and stirring increasing social vices in the country.   

At this point, our concern is that: is debt a blessing or burden to economic growth in Nigeria? In other words, 
what relationship prevails between external debt and nominal GDP in Nigeria? What nature of relationship exist 
between domestic debt and nominal GDP in Nigeria? What influence has exchange rate on nominal GDP in 
Nigeria? To what extent has debt servicing influence nominal GDP? Answering these questions are important to 
virtually all the various economic agents, especially, policy makers who will find the response useful in decision-
making on the best mixture of debt to employ to finance economic activities in Nigeria. 

Other sections of this study are as follows. Section two presents literature review on debt and economic 
growth. Section three reveals methodology employed, then Section four presents the results while Section five 
concludes the study. 
 

2. Literature Review 
2.1. Debt  

Debts have been perceived as the monetary resources employed in an organization which is not funded by its 
owners but obligated to pay at an agreed period with or without interest (Oyejide, Soyede, & Kayode, 2005). Soludo 
(2003) asserts that greater investments as well as greater consumption are two main classifications as well as 
macroeconomic motives for countries going into borrowing (specifically to finance education and health, and/or to 
finance transitory balance of payment deficit to lower nominal interest rates abroad, to suffice the lack of domestic 
long term credit or to circumvent hand budget constraint. The Keynesian economics school of thought postulates 
that government borrowing can be used to promote economic growth, via the financing of government deficit 
expenditures which stimulates aggregate demand and thus encourage increase in private investments (Mbah, 2016; 
Rafindadi & Musa, 2019). 

However, Okonjo, Soludo, and Muhtar (2013) contend that when the quantum of debt increases to a specific 
threshold, debt-servicing becomes a burden, thereby, landing most countries on the wrong side of the Debt Laffer 
Curve, with debt crowding out investment and growth. But, Bakare (2011) with little variance, posits that stunted 
growth in an economy is not a result of the country’s indebtedness, rather, its inability to rationally employ the 
borrowed fund judiciously for economic growth and development advancement as well as efficiency in the debt-
servicing as envisaged. Thus, we see that debt-decision and implementation is not a burden, but failure to optimize 
its determined purpose frustrates the accompanied blessings.  
 

2.2. Debt Situation and Management in Nigeria 
It is more than a decade that the level of public debt is escalating at both domestic and international level, 

particularly after the financial crisis in 2008 yet without commensurate increase in growth and development 
(Festus & Saibu, 2019). In 2010, 2015 and 2019, the trend of external debt stood at N689.837 billion, N2,111.510 
billion and N9,022.422 billion respectively, while that of domestic debt stood at N4,551.822 billion, N8,836.996 
billion and N14,272.645 billion respectively, signifying that the country depends greatly on internal sourcing of 
fund. 



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After the debt forgiveness in 2005, much of external debts are contracted through multilateral debt, bilateral 
debt and euro bond. However, treasury bills, FGN bonds and treasury bonds are the major debt instruments for 
domestic debts.  The graphical illustrations are shown below. 
 

 
Figure-1. Graphical presentation of the trend of domestic debt instruments (treasury bills, Federal government bonds, and treasury bonds) 
for the period 2010 to 2019. 

 

.  
Figure-2. Graphical presentation of the trend of external debt (multilateral debts, bilateral debts, and euro bond) for the period 2010 to 
2019. 
 

Figure 1 and 2 show major components of domestic debts and external debts respectively. Within the past 
decade, domestic debt through federal government bond has an accelerated increased trend from N2,900 billion in 
2010 to N10,500 billion in 2019.  The case of treasury bills, although comparatively lower than FGNB, has been 
relatively stable within the period with the value of N1,200 billion and N2,600 billion in 2010 and 2019 
respectively. However, treasury bonds trend appears very low with decelerated movement as N370 billion was 
recorded in 2010, but in 2019, only N125 billion was borrowed. 

From the components of external debt, multilateral debt, bilateral debt and euro bond all possess a right-
upward movement within the period (2010 - 2019). However, only multilateral debt is pronounced with value of 
N635 billion and N4,120 billion in 2010 and 2019 respectively. Bilateral debt stood at N24 billion in 2010 and 
N1,250 billion in 2019. Although Euro bond was zero naira in 2010, in 2017 and 2019, its value increased to 
N1,800 billion and N3,500 billion respectively. There is a clear indication that dependence on domestic borrowings 
stands taller, compared to external borrowings, nevertheless, federal government bonds and multilateral debts are 
their respective instruments of borrowing within the period. 
 
 
 
 
 
 
 
 



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2.3. Nigerian Total Debt and Economic Growth Nexus 
 

 Figure-3. Graphical presentation of the trend of the ratio of total debt to GDP (TDGDP), ratio of total debt to export (TDEX), ratio of 
total debt to government revenue (TDGR), and ratio of total debt servicing to government revenue (TDSGR) for the period 2010 to 2019. 
 

The ratio of total debt to GDP (TDGDP) in Figure 3 maintained a steady average trend of 10.5% from 2010 to 
2015, then 14.3% in 2016 and 16.1% in 2017 to 2019. This depicts the quantum of total debt engrossed in the 
output level of goods and services. Also, ratio of total debt service to government revenue (TDSGR) is not far from 
TDGDP trend, but varied little from 2015 with a rate 15.3% and later increase sharply to 25.4% in 2016. However, 
TDSGR experienced a slight fall to 24.5% in 2017 and later 22.6% which was maintained in 2018 to 2019. This 
situation of TDSGR, although marginal within 2010 to 2014, the later speaks volume of government revenue 
consumed by debt servicing within the period. 

On the other hand, the ratios of total debt to government revenue (TDGR) and to export (TDEXP) all portray 
parallel trends with relative gap within the period. While TDGR stood at 71.8%, 158.4% and 227.0%, TDEXP 
recorded 43.6%, 123.8% and 117.0% in 2010, 2015 and 2019 respectively. This suggests the country’s great 
reliance on debt to finance its expenditures as well as its export, thereby, creating huge imbalance in the terms of 
trade as well as balance of payment. 

The unconceivably increase in Nigeria’s debt beyond imagination has posed great concern to citizens’ welfare 
and economic activities, not only to the detriment of the country’s image but also has mortgaged future’s 
investment, standard of living, balance of payment, through heavy taxation. Fasoye (2018) asserts that: 

The economic implications of Nigeria’s rising debt profile are not only topical but also becoming provocative public debates 
and discourse every moment. For instance, most developing countries are submerged in the whirlpool of which significantly 
hinders their economic growth and development. It is also true that any economy structured and sustained by borrowing cannot 
achieve economic prosperity. 

Although repayment of public debts could be approached through: debt rescheduling, debt equity conversion; 
ban on external borrowing, debt repudiation, and debt forgiveness as experienced in 2005, Rahman et al. (2010) 
identified scarcity of statistical data, institution arrangements; ineffective law and regulation, and low yield on 
debts instruments as key problems mitigating against effective management of debt in Nigeria.  
 

2.4. Challenges Facing Debt Management in Nigeria 
i. Instability in oil generated revenue due to global recession, vandalism, militant activities (The World Bank, 

2017), and economic shut-down arising from pandemic occurrence (covid-19, natural disaster). 
ii. Lack of major tax policy reforms to significantly increase non-oil revenues led to large revenue shortfalls at 

all levels of government (The World Bank, 2017). 
iii. Multiple and high rates for foreign exchange in the country 
iv. Dominant presence of corruption in public revenue allocation and expenditure (Egeonu, 2017). 
v. Prodigal attitude for foreign investment and property ownership by top political leaders.  
Egeonu (2017) argues that debt woes befalling the third world and African countries which Nigeria belongs, is 

a self-inflicted one, as most African political elites offer themselves as willing tools for exploitations in the hands of 
developed nations by stealing the resources of their countries and hiding them in the developed countries’ banks, 
buying of properties and investments abroad at the detriment of their countries. Mobutu Seseseko of Zaire (DRC) 
was said to be richer than his country. All the looted funds were lost to the foreign nations where he hid them after 
his death (Egeonu, 2017). Discovery of Sani Abacha’s loot of $319 million held in United Kingdom and France 
(Okwumbu, 2020) and $2.2 billion held in Switzerland (British Broadcasting Corporation, 2018) from Nigeria 
coffer is an indication of chronic pandemic loot by most of Nigerian leaders to enriched greatly foreign economies 
where this funds are being held.  

 



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2.5. Theoretical Underpinning 
i. Debt Overhang Theory: On debt overhang theory, Krugman (1988) posits “if there is likelihood that in the 

future debt will be larger than the country’s repayment ability; expected debt service costs will discourage further 
domestic and foreign investment because the expected rate of return from the productive investment projects will 
be very low to support the economy as the significant portion of any subsequent economic progress will accrue to 
the creditor country”. The theory portrays the fact that a counter-productive effect of debt instruments will 
severely decrease investment prospects as well as low level of output in the economy (Fasoye, 2018). 

Also, Claessens and Diwan (1990) declare that “debt overhang is a situation in which the illiquidity effect, the 
disincentive effect, or both effects are strong enough to discourage growth in the absence of concessions by 
creditors.” It is the inability of a country to get her debts serviced as at when due. In this respect government fails 
to discharge her fiscal obligations (Fasoye, 2018). 

ii. Dual Gap Theory: The dual gap theory vies development as a product of investment, which is a core 
function of domestic savings, which is not always sufficient to finance growth and development. This calls for the 
government to employ available instruments for external borrowings, needed quantum of money that can be 
invested to spur economic activities in the country. It is believed that, the invested fund is equal with the sum that 
was saved. In addition, the domestic resources are to be augmented from abroad, such that we have excess of 
import over export (Adedoyin, Babalola, Otekunri, & Adeoti, 2016). 

As shown in national income accounting, surplus of investment over domestic saving is equal to surplus of 
import over export. (i.e., I-S = M-E). Thus: 
Income = Consumption + Import + Savings 
Output = Consumption + Export + Investment 
Income = Output 

This is the basis of dual gap analysis; it explains that if the domestic saving available falls short of the level 
needed to realize the target rate of growth, a savings investment gap is thought to be in existent, thus borrowing is 
induced. On a similar note, if the maximum import requirement necessary to realize the growth target is larger 
than the maximum possible level of export, then there is an export-import exchange gap (Adedoyin et al., 2016). 

iii. Dependency Theory: Dependency theory states that the poverty of the countries in the periphery is not only 
because they are not integrated or fully integrated into the world system, as it is often argued by free market 
economists, but because of how they are integrated into the system. From this standpoint a common school of 
thought is the Bourgeoisie scholars, who are of the view that the state of underdevelopment and the constant 
dependence of less developed countries on developed countries are as a result of their domestic mishaps. They 
believe this issue can be explained by their lack of close integration, diffusion of capital, low level of technology, 
poor institutional framework, bad leadership, corruption, mismanagement, etc (MacKinnon, Haug, & Michelis, 
1999). The proponents of this School of Thought see the underdevelopment and dependency of the third world 
countries as being internally inflicted rather than externally afflicted. To this school of thought, a way out of the 
problem is for third world countries to seek foreign assistance in terms of aid, loan, investment, etc, and allow 
undisrupted operations of the Multinational Corporations (Adedoyin et al., 2016). 
 

2.6. Empirical Review 
Debt-growth relationship has attracted many researchers’ interest.  Their studies are of mixed findings - both 

positive and negative effects of debt on economic growth. Some of these studies are reviewed. 
Interesting, mixed findings from accessed extant literature could be attributed to variations in methodology, 

period and variables employed in the study. As observed in Table 1 above, while Adedoyin et al. (2016); Akhanolu 
et al. (2018); Lawrence and Victor (2016); Lucky and Godday (2017); Nwaoha et al. (2017); Omodero and Alpheaus 
(2019) reveal that external debt has greatly retarded economic growth, only Festus and Saibu (2019)  establishes 
that external debt’s negative influence on economic activities is nominal. However, Egbetunde (2012)  and Orji 
(2018) show that external debts marginally favour economic activities in Nigeria.  

Although, Lawrence and Victor (2016); Onakoya and Ogunade (2017) found domestic debt to have great 
retarded influence on economic activities, however, Akhanolu et al. (2018); Egbetunde (2012); Lucky and Godday 
(2017) empirically concur that domestic debt efficiently favour the output level of goods and services in Nigeria. On 
this note, Omotosho et al. (2016) counsels that even though, external and domestic debt favour economic activity, 
caution should be made to identify the threshold point at which additional debt incurred will retard economic 
growth. Therefore, Omotosho et al. (2016) posit that to avoid a state of quandary and onerous situation, total debt 
threshold level of 73.70 percent is recommended, while estimation inflexion points for external and domestic debts 
are 49.4 percent and 30.9 percent, respectively.  

Debt servicing is not left out as some found it retarding economic activities (Egbetunde, 2012; Orji, 2018), but 
Omodero and Alpheaus (2019); Onakoya and Ogunade (2017) reveal it as a blessing to economic growth. 
 

3. Research Methodology 
The curiosity to ascertain whether the influence of Nigeria’s borrowing on economic growth is a blessing or 

burden, has necessitated this study. As an ex-post facto design study, secondary data sourced from Central Bank of 
Nigeria Statistical Bulletin 2019. Upon determining that the variables were all stationary at difference 1(1) using 
the Augmented Dickey Fuller Unit root test, the study employs the Johansen co-integration test to ascertain the 
long-run integration among the variables, thereafter, regressed the model for statistical estimation of the speed of 
adjustment of the dependent variable in response to changes in the predictor variables, using the error correction 
mechanism.  

 
 
 
 

 



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Table-1. Showing synopsis of related studies. 

S/N Author (s) Study Employed Techniques Findings 

1 Egbetunde 
(2012) 

External borrowing and 
economic growth in 
Nigeria (1970-2008) 

i.                        
Ordinary Least Square 

i) External debt exerts positive but 
insignificant influence on GDP 

ii.                       Co-
integration test 

ii) Domestic debt exerts positive and 
significant influence on GDP 

  iii) Presence of negative significant 
influence of debt servicing on GDP 

2 Omotosho, 
Bawa, and 
Doguwa 
(2016) 

Determining the optimal 
public debt threshold for 
Nigeria (2005-2015) 

 Threshold Regression i) Total debt threshold level of 73.70 
was recommended. 
ii) The estimated inflexion points for 
external and domestic debts were 49.4 
and 30.9 per cent, respectively. 

3 Adedoyin et al. 
(2016) 

External debt and 
economic growth: 
Evidence from Nigeria 
(1981-2014) 

i. Auto-regression 
Distributed Lag 

i) Presence of strong relationship 
between external debt and economic 
growth 

ii.Granger Causality 
test 

ii) Absence of causality relationship 
among the variables 

4 Lawrence and 
Victor (2016) 

Is public debt a necessary 
factor for improving 
economic growth? A 
VAR modeling of the 
Nigerian situation (1980-
2014). 

VAR i) Both external and domestic debt show 
insignificant relationship with economic 
growth. 

5 Onakoya and 
Ogunade 
(2017) 

External debt and 
Nigerian economic 
growth connection: 
Evidence from 
Autoregressive 
Distributed Lag 
Approach (1981-2014) 

i.Auto-regression 
Distributed Lag test 

i External debt exerts negative but 
significant influence on GDP 

ii.Granger Causality 
test 

ii) Domestic debt and Inflation  exert 
negative and insignificant influence on 
GDP 

  iii) External debt service and Export  
exert positive but insignificant influence 
on GDP 

  iv) Unidirectional relationship prevails 
with causality from domestic debt to 
RGDP, and RGDP to Export. 

6 Nwaoha, Ejem, 
Egwu, Ugoji-
Eke, and 
Nwabeke 
(2017) 

An Error Correction 
Model analysis of the 
effect of total external 
debt on the Nigerian 
economy (1980–2015) 

i. ECM i) External debt exerts negative but 
significant influence on GDP 

7 Lucky and 
Godday (2017) 

The Nigeria debt 
structure and its effects 
on economic performance 
(1990-2015) 

i. OLS i) External debt exerts negative but 
significant influence on GDP 
ii) Domestic debt exerts positive and 
significant influence on GDP 
  

8 Orji (2018) The effect of foreign debt 
on the economic growth 
of Nigeria (1995-2017) 

i. OLS i) There is presence of positive 
insignificant influence of external debt 
on Nigerian GDP. 
ii) Foreign debt servicing exerts 
negative and insignificant influence on 
GDP 

9 Akhanolu, 
Babajide, 
Akinjare, 
Tolulope, and 
Godswill 
(2018) 

The effect of public debt 
on economic growth in 
Nigeria: An empirical 
investigation (1982-
2017) 

i. Two-Stage Least 
Square 

) External debt shows negative 
significant impact on GDP 
ii) Domestic debt positively and 
significantly impacts on GDP 

10 Omodero and 
Alpheaus 
(2019) 

The effect of foreign debt 
on the economic growth 
of Nigeria (1997-2017) 

i. OLS i) Foreign debt exerts a negative 
significant influence on nominal GDP 
ii) Foreign debt servicing has a strong 
and significant positive impact on 
nominal GDP 

11 Festus and 
Saibu (2019) 

Effect of external debt on 
Nigerian economy: 
further evidences (1981-
2016) 

i. ARDL i) External debt contributes negatively 
and insignificantly to growth in Nigeria 

  

In line with our research questions, external debt, domestic debt, total debt servicing, and exchange rate are 
used to proxy the Nigerian debt. While nominal GDP is used to measure growth (the explained variable). Reason 
for nominal GDP is because of its non-deflated nature to match with the non-deflated predictor variables employed 
in the study as recommended by Bhole (2006). Also, adapting from the model of Omodero and Alpheaus (2019) 
with little modification, the functional relationship is given as: 
Economic Growth = f (Debt) 
NGDP = f (EDS, DDS, TDS, EXR)                   (i)  
The equation is transform into econometric form with logarithm taken to transform the data. Thus:  

LnNGDP = β0+β1lnEDS + β2lnDDS + β3lnTDS + β4EXR + μ              (ii)  



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Where:  
NGDP = Nominal Gross Domestic Product. 
EDS   = External Debt Stock. 
DDS   = Domestic Debt Stock. 
TDS   = Total Debt Servicing. 
EXR   = Exchange Rate, as the controlling variable. 
Ln = logarithm 

β0,  = constant parameter 

β1, β2, β3, β4= Coefficients or Parameters 

μ  = error term 

A priori Expectation:  β1>0, β2>0, β3<0, β4<0. 
 

4. Presentation and Analysis of Result 
4.1. Unit Root Tests 

The unit root test was conducted in the study to ascertain the statationarity of the variables using the 
Augmented Dickey-Fuller (ADF) test. The   result of the unit root test is   shown in Table 2 below: 
 

Table-2. ADF stationarity (unit root) test result. 

Variable ADF test statistic Critical Value 5% Order of Integration Prob. 

lnNGDP -3.208552 -2.943427 I(1) 0.0274 
lnEDS -4.725971 -2.943427 I(1) 0.0005 
lnDDS -4.566508 -2.943427 I(1) 0.0008 
lnTDS -7.885127 -2.943427 1(1) 0.0000 
EXR -5.218774 -2.943427 1(1) 0.0001 

Note: Critical Values at 5% is Considered Significant. 

 
The ADF Unit root result in Table 2 shows that all the variables became stationary at first difference given 

that the ADF statistic value for each of the variables is greater than the critical values in absolute terms and at 5% 
level of significance. On the basis of this result we proceed to estimate the presence or other wise of long-run 
relationship among the variables using Johansen co-integration test. 
 

4.2. Co-Integration Test 
Having established that the variables are integrated at order one 1 (1), we tested for the existence of long run 

relationship among the variables using the Johansen multivariate co-integration analysis based on trace test and 
maximum eigenvalue test. The result of the co-integration test is presented in Table 3 below: 

 
Table-3. Johansen co-integration test result. 

Hypothesized  Trace 0.05  

No. of CE(s) Eigenvalue Statistic Critical Value Prob.** 

None * 0.674751 108.4297 88.80380 0.0010 

At most 1 * 0.504033 67.99589 63.87610 0.0216 

At most 2 0.456190 42.75104 42.91525 0.0519 

At most 3 0.309821 20.82145 25.87211 0.1871 

At most 4 0.187443 7.472483 12.51798 0.2978 
Note: 
Trace test indicates 2 cointegrating eqn(s) at the 0.05 level. 
 * denotes rejection of the hypothesis at the 0.05 level. 
 **MacKinnon et al. (1999) p-values. 

 
From Table 3, the result of the Johansen’s co-integration analysis based on trace statistics shows two co-

integrating equations which imply that the variables are co-integrated and that significant long-run relationship 
exists between the various determinants of debt and economic growth in Nigeria. We therefore reject the null 
hypothesis of no co-integration and proceed to determine the adjustment for the discrepancies between the long-
run and short-run interaction of the times series using error correction estimation mechanism. 
 

4.3. Error Correction Mechanism 
The error correction mechanism (ECM) is used in this study to determine the speed or rate at which the 

dependent variable will adjust to changes in the independent variables. The error correction mechanism result is 
therefore presented in Table 4 . 

 
Table-4. Error correction estimate output for the model. 

Dependent Variable: lnNGDP 
ECM(-1) -0.064848 0.02468 -2.62790 0.0095 
D(LNEDS) 0.022417 0.03298 0.67973 0.4978 
D(LNDDS) 0.196333 0.09803 2.00289 0.0471 
D(TDS) -0.054643 0.03435 -1.59060 0.1139 
D(EXR) 0.000133 0.00065 0.20506 0.8378 
Constant 0.100733 0.03656 2.75519 0.0066 
R-Squared 0.576090 Log likelihood 47.07051 
Adj. R2 0.473767 Akaike Info Criterion -2.111919 
Sum Sq. resid 0.170110 Schwarz Criterion -1.763613 
S. E. equation 0.076589 Mean dependent Var 0.184750 
F-Statistic 5.630111 S.D. dependent Var 0.105579 
Prob. (F-stat) 0.000052 Durbin-Watson stat 2.010592 



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From the ECM result presented in Table 4 above, the coefficient of -0.064848 shows that the error correction 
term is correctly signed and significant, implying that the discrepancies between the short-run and long-run 
equilibrium can be corrected each year by the tone or speed of 6.5 percent. The F- statistics with the p-value of 
0.000052 shows that the regression is statistically significant and the model has a good fit. The coefficient of 
determination of 0.576090 shows that about 57.6 percent of the total variation in economic growth as proxied by 
nominal GDP is jointly explained by the variation in debt variables within the study period while the remaining 
42.4 percent variation is attributed to other factors not included in the model. This implies that debt determinants 
exhibited an average power in explaining the variations in the growth of Nigerian economy.  

Analysis of the short- run estimates showed that while total debt servicing exert negative influence, external 
debt stock, domestic debt stock and exchange rate have positive relationship with nominal GDP in Nigeria within 
the study period to the extent that a one percent increase in EDS, DDS and EXR, all things being equal will 
increase the output level of goods and services in Nigeria by 0.02, 0.19 and 0.00 percent respectively. However, 
domestic debt stock does not only exert positive influence but also significantly influence economic activities in 
Nigeria.  

The implication of the result is that domestic debt stock is the only proficient borrowing source that drive the 
output level of goods and services in Nigeria, thereby spurring economic growth and development in terms of 
employment generation and improvement in standard of living. All the explanatory variables’ results comply to the 
a priori expectations with exception to exchange rate, which showed a positive but marginal relationship with 
nominal GDP in Nigeria. This could be attributed to Nigeria’s largest export of crude oil to the United States 
accounting over 80% of trade transactions from Nigeria (Okoro & Charlse, 2019). This finding agrees with the a 
priori expectations, and is consistent with previous studies by Egbetunde (2012) and Orji (2018) where the 
coefficient values of external debts were positive and debt servicing signed in negative and all insignificantly 
impact on the economic growth. The study also finds credence to the studies of  Akhanolu et al. (2018); Lucky and 
Godday (2017) where, domestic debt was found to efficiently promote the output level of goods and services in 
Nigeria during the evaluation period. 

 

5. Concluding Remarks and Policy Recommendations 
This paper that set out to empirically examine the Nigeria’s debt-growth nexus: whether a blessing or 

burden for the period 1981-2019, and adopted the Augmented Dickey- Fuller unit root test, co-integration analysis 
and error correction model estimation techniques. From the ECM results, it is obvious that debt financing in 
Nigeria is a blessing as external and domestic debt stocks all exert positive influence on economic growth. 
However, only domestic debt stock is efficient enough to spur economic activities, which suggests that prudent 
employment of domestic debt which is not affected by exchange rate is a strong catalyst for rapid increase in 
economic activities in Nigeria. Therefore, having identified domestic debt as the linchpin of economic growth in 
Nigeria, the study recommends the choice for internally borrowed fund as the best benign financing option as well 
as its optimal utilization for meaningful commensurate economic activities. Also, recommendable threshold point of 
borrowing should strictly be adhere to in order to avoid landing the economy into a state of onerous situation. 
 

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