Estimation Of Public Debt Effect On Unemployment And Inflation In Nigeria

Abstract

Being one of the important sources of government revenue, both the developed and developing economies borrow to close the gap that exists between government revenue and expenditure. This study estimated the effects of public debt on unemployment and inflation in Nigeria. A 40 years’ time-series annual data on external debt, domestic debt, unemployment and inflation, spanning from 1980 to 2020 was used. Relevant diagnostic tests using E-views were conducted to test for unit root and granger causality. Autoregressive Distributive Lag Model (ARDL) Error Correction Model were employed to analyze the data. The findings revealed that public debt and unemployment have a log run relationship. When borrowing increase in Nigeria, unemployment increases the more. Further findings indicated that domestic debt causes less unemployment than external debt. However, cointegration analysis pointed no long-run relationship existing between public debt and inflation. The study urges the government to consider other important sources of revenue generation than borrowing. When borrowing becomes necessary then priority on internal debt is highly recommended.