Domestic Debt Structure, Interest Rate and Economic Growth in Nigeria (1990–2023)

This study empirically examines the impact of domestic debt on economic growth in Nigeria over the period 1990–2023. Specifically, the study evaluates the inpact of domestic debt, debt servicing, and interest rate on economic growth proxied by Real Gross Domestic Product (RGDP). Annual time series data were obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin and analyzed using modern econometric techniques. The study employed descriptive statistics, Augmented Dickey–Fuller (ADF) unit root test, bounds cointegration test, and the Autoregressive Distributed Lag (ARDL) model to estimate both short-run and long-run relationships among the variables. The unit root test results reveal that RGDP, domestic debt, and debt servicing are integrated of order one I(1), while interest rate is stationary at level I(0), validating the suitability of the ARDL methodology. The bounds cointegration test confirms the existence of a long-run equilibrium relationship among the variables. The empirical findings indicate that domestic debt exerts a positive and statistically significant impact on economic growth in both the short run and long run, suggesting that government borrowing from domestic sources can stimulate economic activity when effectively utilized. However, debt servicing shows a negative but statistically insignificant impact on economic growth, while interest rate demonstrates a negative and significant long-run impact on RGDP, implying that high borrowing costs can constrain investment and economic expansion. The study concludes that domestic debt has a positive impact on economic growth. Consequently, the study recommends improved debt management strategies, efficient utilization of borrowed funds for infrastructure and development projects, and the implementation of stable interest rate policies to promote sustainable economic growth in Nigeria.