Debt-Economic Growth Nexus: Empirical Evidence from South-South States of Nigeria

• Published in: Acta Universitatis Danubius. Œconomica 2021, Vol.17 (2), p.7-18
• Main Authors: Efayena, Obukohwo Oba, Olele, Enoh Hilda
• Format: Article
• Language: eng ; fre
• Subjects: Bias; Business Economy / Management; Central banks; Central government; Debt; Debt restructuring; Debt service; Economic growth; Economic performance; Expenditures; External debt; Macroeconomics; National Economy; Rivers; Socio-Economic Research; State government
• ISSN: 2065-0175; 2067-340X

The purpose of this study is to investigate the debt-economic growth nexus among states domiciled in South-South region of Nigeria. Using data from 2014-2019, the study employed the dynamic panel ordinary least squares (DOLS) to correct for simultaneity bias among the regressors and small sample bias, which are all associated with OLS estimator. It also adopted the Pedroni (1999, 2004) and Larsson, Lyhagen and Lothgreen (2001) techniques to establish the presence of a long-run relationship. The results affirmed that the South-South States are bedevilled by huge debt burden through the years, restraining and inhibiting their economic performance, since both domestic and external debts have impacted negatively on economic growth. The findings of this study showed that South-South states, and by extension other sub-national governments are faced with numerous macro and micro-level challenges orchestrated by external and domestic debts and requires responses from relevant stakeholders to stabilize the narrative. The novelty of this study is twofold. This systematic analysis of the impact of domestic and external debt is the first of its kind focusing solely on South- South geopolitical zone of Nigeria. Unlike previous studies, the study carried out a state-by-state as well as panel cointegration test to establish long run relationship.