IMPACT OF PUBLIC DEBT STOCK ON REAL SECTOR STABILITY IN NIGERIA

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IMPACT OF PUBLIC DEPT....pdf (3.61 MB)

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2018-06-13

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Department of Accounting Nasarawa State University Keffi.

Abstract

This paper examines the effect of public debt stock on real sector stability in Nigeria using annual data series of public debt stock, budget deficit, real GDP growth rate and inflation rate for the period 1981-2016. Augmented Dickey Fuller (ADF) test for unit root result shows that all variables are integrated of order one and Johansen Cointegration test confirms the absence of long run relationship among the variables, and this informs the choice of Vector Autoregression model for the analysis. However, the study reveals that public debt stock has insignificant positive effect on budget deficit and real GDP growth rate and an insignificant negative effect inflation rate, in the short run. The study found also that the variations in budget deficit, GDP growth rate and inflation rate were largely due to own shocks in the model while budget deficit significantly accounted for variations in public debt stock. Granger causality test reveals the absence of causal relationship between public debt stock and inflation rate as well as public debt and real GDP growth rate and confirms that budget deficit granger-causes public debt. The study recommends that further public borrowing should be targeted at engendering growth and stability of the economy in the long-run without raising the price levels. In addition, government should moderate the growth of its budget deficit which further increases its debt stock. Also, the effect of other variables exogenous to the model on budget deficit, inflation rate and real GDP growth rate should be investigated.

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Public Debt, Financial Stability, Real Sector Stability, Budget Deficit

Citation

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https://keffi.nsuk.edu.ng/handle/20.500.14448/682

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