Skip to main content

Advertisement

SpringerLink
Log in

The Influence of Economic Institutions in the Debt-Growth Nexus: Evidence from Nigeria

  • RESEARCH ARTICLE
  • Published:
Open Economies Review Aims and scope Submit manuscript

Abstract

This paper investigates the influence of economic institutions in the debt-growth nexus. Using data from 1970 to 2020 on Nigeria, the paper extends the econometric literature by deploying cointegration techniques that account for structural breaks. A long equilibrium relationship was found among debt, growth, economic institutions and associated variables. The effect of debt on growth was found to be positive up to a threshold of 13.62% and 27.19% of gross domestic product in the short and long-run respectively, beyond which its effect becomes negative and significant. Growth is more sensitive to economic institutions than debt, underscoring the criticality of institutions.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Data Availability

The data used in the study is available from the corresponding author upon reasonable request.

References

  • Bai J (1997) Estimating multiple breaks one at a time. Economet Theor 13:315–352

    Article  MathSciNet  Google Scholar 

  • Bai J, Perron P (1998) Estimating and testing linear models with multiple structural changes. Econometrica 66:47–78

    Article  MathSciNet  Google Scholar 

  • Bai J, Perron P (2003a) Computation and analysis of multiple structural change models. J Appl Economet 18(1):1–22

    Article  Google Scholar 

  • Bai J, Perron P (2003b) Critical values for multiple structural change tests. Economet J 6(1):72–78

    Article  MathSciNet  Google Scholar 

  • Ben-David D, Lumsdaine RL, Papell DH (2003) Unit roots, postwar slowdowns and long-run growth: evidence from two structural breaks. Empir Econ 28(2):303–319

    Article  Google Scholar 

  • Bentour EM (2020) On the public debt and growth threshold: One size does not necessarily fit all. Appl Econ 53(11):1280–1299. https://doi.org/10.1080/00036846.2020.1828806

    Article  Google Scholar 

  • Bentzen J, Engsted T (2001) A revival of the autoregressive distributed lag model in estimating energy demand relationships. Energy 26(1):45–55. https://doi.org/10.1016/s0360-5442(00)00052-9

    Article  Google Scholar 

  • Bexheti A, Sadiku L, Sadiku M (2020) The impact of public debt on economic growth: Empirical analyses for Western Balkan countries. In: Janowicz-Lomott M., Łyskawa K., Polychronidou P., Karasavvoglou A. (eds), Economic and Financial Challenges for Balkan and Eastern European Countries. Proceedings in Business and Economics, Springer, Cham. https://doi.org/10.1007/978-3-030-39927-6_2

  • Chudik A, Mohaddes K, Pesaran MH, Raissi M (2017) Is there a debt-threshold effect on output growth? Rev Econ Stat 99(1):135–150

    Article  Google Scholar 

  • Clements BJ, Bhattacharya R, Nguyen TQ (2003) External debt, public investment, and growth in low-income countries. IMF Working Papers 03/249 International Monetary Fund

  • Daud SNM, Podivinsky J (2014) Government debt and economic growth in Malaysia: the role of institutional quality. Appl Econ Lett 21(17):1179–1183. https://doi.org/10.1080/13504851.2014.916378

    Article  Google Scholar 

  • Dogan I, Bilgili F (2014) The non-linear impact of high and growing government external debt on economic growth: A Markov regime-switching approach. Econ Model 39:213–220

    Article  Google Scholar 

  • Emilio C, Enrico L (2009) The politics of external debt in developing countries. Working Paper Series, Department of Economics, University of Milan, 176, 1–22

  • Fosu AK (2018) Governance and development in Africa: A review essay. African Development Bank Group Working Paper Series No. 298

  • Fraser Institute (2022) Economic freedom of the world. Annual report. https://www.fraserinstitute.org/economic-freedom/dataset. Accessed 20 July 2022

  • Gómez-Puig M, Sosvilla-Rivero S (2018) Nonfinancial debt and economic growth in euro-area countries. J Int Finan Markets Inst Money 56:17–37

    Article  Google Scholar 

  • Imbs J, Ranciere R (2005) The overhang hangover. World Bank Policy Research Working Paper No. 3673

  • Jalles JT (2011) The impact of democracy and corruption on debt-growth relationship in developing countries. J Econ Dev 36(4):41–72

    Article  Google Scholar 

  • Kim E, Ha Y, Kim S (2017) Public debt, corruption and sustainable economic growth. Sustainability 9(3):1–30. https://doi.org/10.3390/su9030433

    Article  MathSciNet  Google Scholar 

  • Koroglu M (2019) Growth and debt: An endogenous smooth coefficient approach. J Risk Financ Manag 12(1):23. https://doi.org/10.3390/jrfm12010023

    Article  Google Scholar 

  • Kourtellos A, Stengos T, Tan CM (2013) The effect of public debt on growth in multiple regimes. J Macroecon 38:35–43

    Article  Google Scholar 

  • Law SH, Azman-Saini WNW, Ibrahim MH (2013) Institutional quality thresholds and the finance-growth nexus. J Bank Finance 37(12):5373–5381. https://doi.org/10.1016/j.jbankfin.2013.03.011

    Article  Google Scholar 

  • Markus A, Rainer S (2016) Public debt and economic growth: Economic systems matter. Center for European Governance and Economic Development Research, Göttingen Discussion Paper 281

  • Megersa K, Cassimon D (2014) Public debt, economic growth and public sector management in developing countries: is there a link? Institute of Development Policy and Management (IOB), University of Antwerp Working Paper / 2014.11

  • Ndoricimpa A (2020) Threshold effects of public debt on economic growth in Africa: A new evidence. J Econ Dev 22(2):187–207

    Article  Google Scholar 

  • North DC (1990) Institutions, institutional change and economic performance. Cambridge University Press, New York

  • Nounamo Y, Asongu SA, Njangang H, Tadadjeu S (2022) Effects of political institutions on the external debt-economic growth nexus in Africa. DBN Working Paper Series 232

  • Nurazira S, Daud M (2020) External debt, institutional quality and economic growth. Bull Monet Econ Bank 23(2):221–238

    Article  Google Scholar 

  • Pattillo CA, Poirson H, Ricci LA (2004) What are the channels through which external debt affects growth? IMF Working Papers 04/15 International Monetary Fund

  • Perron P (1989) The great crash, the oil price shock, and the unit root hypothesis. Econometrica 57:1361–1401

    Article  Google Scholar 

  • Perron P (1997) Further evidence on breaking trend functions in macroeconomic variables. J Econ 80(2):355–385

    Article  MathSciNet  Google Scholar 

  • Perron P (2006) Dealing with structural breaks. In K. Patterson and T. C. Mills (eds.), Palgrave Handbook of Econometrics, Vol. 1: Econometric Theory (pp. 278–352). Palgrave Macmillan

  • Perron P, Vogelsang TJ (1992a) Nonstationarity and level shifts with an application to purchasing power parity. J Bus Econ Stat 10:301–320

    Google Scholar 

  • Perron P, Vogelsang TJ (1992b) Testing for a unit root in a time series with a changing mean: Corrections and extensions. J Bus Econ Stat 10:467–470

    Google Scholar 

  • Pesaran M, Shin Y, Smith R (2001) Bounds testing approaches to the analysis of level relationships. J Appl Economet 16(3):289–326

    Article  Google Scholar 

  • Pescatori A, Sandri D, Simon J (2014) Debt and growth: Is there a magic threshold? Working Paper 14/34, International Monetary Fund, Washington DC

  • Raesetja MM (2020) Public debt and economic growth: Does institutional quality matter? Dissertation (Master of Commerce in Economics), University of the Witwatersrand

  • Reinhart R, Rogoff K (2010) Growth in a time of debt. Am Econ Rev 100:573–578

    Article  Google Scholar 

  • Ring TS, Abdullah MA, Osman WSM, Hamdan R, Hwang JYT, Mohamad AA, Hassan MKH, Khalid FD (2021) Impact of external debt on economic growth: The role of institutional quality. Int J Acad Res Econ Manag Sci 10(3):223–236

    Google Scholar 

  • Salmon J, de Rugy V (2020) Debt and growth: A decade of studies. Mercatus Research Paper. https://doi.org/10.2139/ssrn.3690510

    Article  Google Scholar 

  • Tarek BA, Ahmed Z (2017a) Governance and public debt accumulation: Quantitative analysis in MENA countries. Econ Anal Policy 56:1–13. https://doi.org/10.1016/j.eap.2017.06.004

    Article  Google Scholar 

  • Tarek BA, Ahmed Z (2017b) Institutional quality and public debt accumulation: An empirical analysis. Int Econ J 31(3):415–435

    Article  MathSciNet  Google Scholar 

  • United Nations Conference on Trade and Development (UNCTAD) (2022) unctad.org/en/Pages/statistics.aspx. Accessed 5 Nov 2022

  • Vianna AC, Mollick AV (2018) Institutions: Key variable for economic development in Latin America. J Econ Bus 96:42–58. https://doi.org/10.1016/j.jeconbus.2017.12.002

    Article  Google Scholar 

  • Wiggins S, Davis J (2006) Economic institutions. Paper prepared for the DFID-funded Research Programme, Institutions and Pro-Poor Growth (IPPG). IPPG Briefing Paper No. 03, July 2006

  • Woo J, Kumar MS (2015) Public debt and growth. Economica 82:705–739

    Article  Google Scholar 

  • World Bank (2022) World Development Indicators. World Bank, Washington DC

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics and Development Studies, Federal University Dutsin-Ma, Dutsin-Ma, Katsina State, Nigeria

    Martins Iyoboyi & Abdullahi Badiru

Authors
  1. Martins Iyoboyi
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Abdullahi Badiru
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Martins Iyoboyi.

Ethics declarations

Conflict of Interest

The authors declare that there is no conflict of interest.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

The authors wish to thank the anonymous reviewers for their constructive comments.

Supplementary Information

Below is the link to the electronic supplementary material.

Supplementary file1 (DOCX 215 KB)

Supplementary file2 (DOCX 39 KB)

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Iyoboyi, M., Badiru, A. The Influence of Economic Institutions in the Debt-Growth Nexus: Evidence from Nigeria. Open Econ Rev (2024). https://doi.org/10.1007/s11079-024-09749-6

Download citation

  • Accepted:

  • Published:

  • DOI: https://doi.org/10.1007/s11079-024-09749-6

Keywords

JEL Classification

Search

Navigation