Public Debt and Economic Growth in Nigeria: Evidence from Granger Causality

Abstract

<b> </b>The paper examined the causal nexus between public debt and economic growth in Nigeria between 1970 and 2010 using a Vector Autoregressive (VAR). The variables used in the study were tested for stationarity using the Augmented Dickey Fuller and Philip Perron test. The result showed that the variables are stationary at first differencing. Co-integration test was also performed and the result revealed the presence of co-integration between public debt and economic growth. The co-integration results show that public debt and economic growth have long run relationship. The findings of the VAR model revealed that there is a bi-directional causality between public debt and economic growth in Nigeria. The paper concluded that public debt and economic growth have long run relationship, and they are positively related if the government is sincere with the loan obtained and use it for the development of the economy rather than channel the funds to their personal benefit.