Relationship between Public Debt and Exports in Nigeria: A Granger Causality and Threshold Analysis Approach

Abstract:

This paper examines the relationship between public debt and exports of Nigeria, ranging from the period 1981 to 2017. It analyses the trend of public debt and its measure of sustainability and how it relates to the export earnings of Nigeria. Granger causality was used to test the causality effect of public debts on Nigeria's exports (oil and non-oil exports). Also, threshold regression analysis was used to investigate the relationship between public debt and exports of Nigeria. Granger causality results show that the export of goods and services of Nigeria granger causes external debt while external debt does not granger cause the export of goods and services. Domestic debt has a statistically significant influence on exports of Nigeria, but a threshold exists for this to avoid the crowding-out effect and higher interest rate, which will influence exports negatively. Hence, for Nigeria as a nation to maintain the sustainability of its domestic debt in relation to exports, there is an existence of a maximum threshold limit of ₦6,538 billion, while external debt should be below ₦3,178 billion.