Public debt and inflation nexus in Nigeria: An ARDL bounds test approach

Abstract

Inflationary tendencies of public debt have been the cause of an unsettling debate among policymakers in Nigeria. Using the autoregressive distributed lag (ARDL) framework, this study attempts to investigate the impact of total public debt on inflation in Nigeria for the period 1983–2018. The cointegrating regression results reveal evidence of a stable long-run relationship among inflation, total public debt, money supply, interest rate, economic growth, trade openness, and private investment in the presence of structural breaks. Empirical results show that the impact of public debt on inflation is statistically insignificant, irrespective of whether the regression was in the short or the long run. Hence, the study concludes that inflation in Nigeria could be driven by other factors other than public debt.

Keywords:

• Public debt
• inflation
• ardl
• Nigeria

subjects:

• African Studies
• Econoimcs and Development
• Economics

GEL Classifications:

• c32
• e31
• h63

PUBLIC INTEREST STATEMENT

In this paper, the effect of public debt on inflation in Nigeria is investigated for the period 1983-2018. A low and stable inflation rate is one of the major objectives of both monetary and fiscal authorities in Nigeria. Given government’s drive towards the provision of infrastructural development from additional domestic savings and investment to spur economic growth, public debt dynamics are a major determinant of a country’s macroeconomic environment and private investment climate. Most investors would analyse inflation to establish the macroeconomic environment stability for investment purposes. A stable and reduced inflation rate can increase real return on investment, enabling economic actors to respond to various investment opportunities. The findings of this study confirm that total public debt has a neutral impact on inflation, irrespective of whether the analysis is conducted in the short - or the long run. Hence, inflation in Nigeria could be driven by other factors other than public debt.

Notes

1. See also Aimola and Odhiambo (2020).

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Akingbade U. Aimola

Akingbade U. Aimola is a PhD candidate (Economics) at the University of South Africa. He holds a Master's degree in Economics from the University of Sheffield UK, with over six years work experience in sovereign debt management and macroeconomics analysis. His research interests are in the areas of macroeconomics, development economics, international economics, applied economics, financial economics and risk management.

Nicholas M. Odhiambo

Nicholas M. Odhiambo holds a PhD (Economics) degree from the University of Stellenbosch and a Master’s degree in Economics from the University of Dar-es-salaam. He is a seasoned academic whose research has made a significant contribution to the scholarly body of knowledge. He is currently one of the top economics researchers, not only in Africa, but also internationally. He is also one of the most-cited and most-read economics authors worldwide – according to RePEc/IDEAS. He is currently working as Professor of Economics and Head of Macroeconomic Policy Analysis research flagship programme at the University of South Africa (UNISA).