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Title page                                                                                          i

Declaration                                                                                                 ii

Certification                                                                                      iii

Dedication                                                                                         iv

Acknowledgements                                                                                      v

List of tables                                                                                      ix      

Abstract                                                                                             x       


1.1     Background of the Study                                                                  1

1.2     Statement of the Problem                                                                  3

1.3     Objectives of the Study                                                           4

1.4     Research Questions                                                                 5

1.5     Research Hypothesis                                                               5

1.6     Significance of the Study                                                                  5

1.7     Scope of the Study                                                                  6

1.8     Limitations of the Study                                                                   6

1.9     Operational Definition of Terms                                             6




2.1     Theoretical Framework                                                           8

2.2     Conceptual Framework                                                           17

2.3     Empirical Studies                                                                              52

2.4     Summary of Literature Review                                                         54


3.1     Introduction                                                                            57

3.2     Research Design                                                                      57

3.3     Sources of Data Collection                                                      58

3.4     Instrument of Data Collection                                                 58

3.5     The population of the Study                                                   59

3.6     Sample and Sampling Technique                                            59

3.7     Reliability and Validity of Data and Test Instrument              59

3.8     Data Analysis Technique                                                                  60


4.1     Introduction                                                                            61

4.2     Analysis of Data                                                                     61

4.3     Test of Research Hypothesis                                                   70




5.1     Summary of Findings                                                              72

5.2     Conclusion                                                                              72

5.3     Recommendations                                                                             73

References                                                                                         74

Appendix                                                                                          80






The impact of different types of domestic debt on economic growth of Nigeria was studied using multipleregression technique. Outcome of the study indicates that in the short run, FGN Bond proved to have a positivesignificant relationship with economic growth, while Development stock maintained a significant negativerelationship. In the long run; Treasury Bills and the lagged value of GDP (in the second year), taken asindependent variables were found to be positively significant. Result of the Granger causality test revealed that,while there is a unidirectional relationship between economic growth and FGN Bonds on one hand, there exists unidirectional relationship between Treasury bills and economic growth on the other hand. The study, thereforerecommends that, it is not a bad idea after all borrowing from within, since debt could be deployed to goodpurposes. However, the rule of thumb is that the returns (for a business) and societal welfare (in the case of agovernment) derivable from deploying the funds generated from the loans mustsurpass the interest being paidon such loan. As a way out of the woods, government must undertake an aggressive cut-down of her bogusburgeoning recurrent expenditure which is over 70% of the total expenditure profile. This will help free up themuch-needed savings for infrastructural development. The study further recommends that the Nigeriangovernment should stop accumulating unproductive debts that have no positive multiplier effect. If at all shemust borrow from within, then such loans must be tied to some specific, viable and growth enhancing projects that could pay its way through.







1.1   Background of the Study

Debt is an outstanding credit obligation. It refers to payment which must be, but has not yet been paid tosomebody. Legally, debt is a choice in action transferable by the creditor to some other person provided that thetransfer is in writing and that whole and not merely a part of the debt is so assigned ( Anyafo, 1995).

Public debt is an amount of money owed by the government to institutions, government agencies and otherbodies either resident in or outside a country. When debts are owed to residents within a country, it is known asdomestic public debt. Specifically in Nigeria, the sources of domestic public debt are the central bank of Nigeria,commercial banks, merchant banks and the non bank public (Nzotta,2004).

It is the objective of every sovereign nation to improve the standard of living of its citizenry and to promote hereconomic well being. Due to the scarcity of resources, nations borrow from within and externally to fostereconomic growth and to achieve sustainable economic development (Adepoju, Salau & Obayelu, 2007). Thenecessity for governments to borrow in order to finance a deficit budget has led to the development of bothinternal and external debts (Osinubi & Olaleru, 2006, Obadan, 2004).

By way of definition, domestic debts refer to the portion of a country’s debt that was borrowed from within theconfines of a country. These loans are usually obtained from the central bank of Nigeria, deposit money banks,discount houses and other non bank financial houses. This study therefore is set to assess the degree to which thedifferent components of domestic debts have impacted on the economic growth of Nigeria over the period 1980-2014.

1.2 Statement of Research Problem

The reliance by the federal government in borrowing from the banking system, particularly the CBN, to financeits large and unsustainable fiscal deficits has hindered the attainment of macroeconomic stability and sustainableeconomic growth in Nigeria. In addition, this has crowded out the private sector from the credit market, therebystalling investment and output growth. A review of Nigeria’s domestic debt profile indicates that, it has been on the increase in recent times. Variousfactors account for the phenomenal rise. This includes the increased financing needs of government fordevelopmental purposes and other socio –economic needs before the advent of the oil boom. There was also theneed to finance the large fiscal deficits of the government after the oil boom period. Other factors include thefinancing gaps in the government revenue-expenditure profile and other financing needs of the government. Allthese had led to the enhanced domestic debt stock of NigeriaIn spite of her continued penchant for domestic loans, Nigerian economy is still characterized by low per capitaincome, high unemployment rates, dwindling economies, inadequate basic amenities and poor infrastructuraldevelopments and falling growth rates of GDP; problems that publicly procured funds are supposed to take careof. Paradoxically; it does not appear as if our craving for domestic loans is in any way commensurate to our lowlevel of economic growth and development.

The natural question that readily comes to mind is: What has our leaders and the political class been doing withthe huge sums of money procured on our behalf as domestic debts and how beneficial has these sources of loansbeen to the economic growth of Nigeria? It is against this background that this study will seek to investigate thevarious components of our domestic debt profile. This is with a view to ascertaining the usage, to which theproceeds were put, and the direction / significance of the effects of such funds. – That is the crux of the matter!

1.3  Research Questions

This study will be addressing these research questions

  • what is the nature of the relationship between domestic debt and economic growth in Nigeria with the period under review?
  • What is the impact of domestic debt on economic growth of Nigeria?

1.4 Research Objective

The broad objective of this study is to ascertain the impact of domestic debt on economic growth of Nigeria.

Specifically, the objectives of this study include:

  1. To ascertain the relationship between domestic debt and economic growth of Nigeria.
  2. To find out the impact of domestic debt on economic growth of Nigeria.

Centrally, the study is intended to ascertain the impact of domestic debt on the economicgrowth of Nigeria. It will investigate the mismatch between the huge domestic debts incurred by Nigeria, withinthe period (1980-2014) and the stunted level of economic growth in Nigeria. The study will seek to determinethe impact of domestic debts procured through Treasury bills, Treasury certificates and Treasury Bonds onthe economic growth of Nigeria. It will also seek to determine the impact of Development stock, FGN Bondsand Promissory notes on the economic growth of Nigeria, herein, represented by Gross Domestic Product(GDP).

1.5 Hypothesis of the study:

The following hypotheses shall be tested in this study:

Ho1: There is no significant relationship between the Domestic debt and economic growth in Nigeria.

Ho2: Domestic debts has no significant impact on economic growth in Nigeria

1.6 Scope of the Study

Domestic debt and economic growth is a very broad area. This study as a matter of fact is limited only to theNigerian economy. The scope of investigation is delineated from 1980-2014, a period of 35 (thirty five years).


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