Moderating Effect of Public Debt on the Relationship Between Government Expenditure and Economic Growth in Nigeria

Abstract

Nigeria's persistent challenge of reconciling increasing government expenditure with sluggish economic growth, compounded by a rapidly escalating public debt profile, formed the background motivation for this study. The main objective of this study was to examine the moderating effect of public debt on the relationship between government expenditure and economic growth in Nigeria. The study employed an ex-post facto research design utilizing secondary data collected from the Central Bank of Nigeria Statistical Bulletin for a period of forty years spanning 1985 to 2024. The population of the study comprised all annual economic data on government expenditure, public debt, and economic growth indicators in Nigeria during the study period. The Autoregressive Distributed Lag (ARDL) model was employed to analyze the time series data at 5% significance level. The findings revealed that public capital expenditure had a positive and statistically significant effect on economic growth, while public recurrent expenditure exerted a negative and statistically significant effect on economic growth in Nigeria. Furthermore, public debt was found to significantly weaken the growth-enhancing impact of capital expenditure, while marginally and positively moderating the relationship between recurrent expenditure and economic growth. It was recommended that government prioritize high-impact capital investments shielded from debt service pressures and rationalize recurrent expenditure to redirect fiscal space toward productive growth-enabling activities.