THE PASS-THROUGH EFFECT OF PUBLIC DEBT ON PRIVATE DOMESTIC INVESTMENT IN NIGERIA (1960-2019)

Abstract

This study examined the pass-through effect of public debt on private domestic investment in Nigeria over the period 1960 to 2019. The study adopted the Non-linear Auto Regressive Distributed Lag (NARDL) approach to investigate the direct and indirect impact of public debt on private domestic investment in Nigeria. Analyzing annual time series data, the study established that increase in public debt had greater indirect crowding-out effects on private domestic investment than crowding-in effect of increases in public debt, both in the long run and in the short run. The long-run and short-run analysis also revealed that reduction in public debt had greater indirect crowding-in effects on private domestic investment than crowding-out effect. The study also discovered that, the crowding-in effect of reducing public debt is greater than the crowding-in effect of increasing public borrowing. This finding also confirmed the non-linear or indirect effect of public debt on private domestic investment in Nigeria as propounded by the reviewed theoretical postulations. Based on the findings of this study it was recommended that public debt be reduced in Nigeria by identifying and utilizing other viable locally sourced resources for private domestic investments. It was also recommended that adequate policies be put in place to ensure efficient utilization of available human, natural and physical resources in productive activities, which would ensure increased productivity and national output.