The impact of different types of domestic debt on economic growth of Nigeria was studied using multiple regression technique. Outcome of the study indicates that in the short run, FGN Bond proved to have a positive significant relationship with economic growth, while Development stock maintained a significant negative relationship. In the long run; Treasury Bills and the lagged value of GDP (in the second year), taken as independent variables were found to be positively significant. Result of the Granger causality test revealed that, while there is a unidirectional relationship between economic growth and FGN Bonds on one hand, there exists unidirectional relationship between Treasury bills and economic growth on the other hand. The study, therefore recommends that, it is not a bad idea after all borrowing from within, since debt could be deployed to good purposes. However, the rule of thumb is that the returns (for a business) and societal welfare (in the case of a government) derivable from deploying the funds generated from the loans must surpass the interest being paid on such loan. As a way out of the woods, government must undertake an aggressive cut-down of her bogus burgeoning recurrent expenditure which is over 70% of the total expenditure profile. This will help free up the much-needed savings for infrastructural development. The study further recommends that the Nigerian government should stop accumulating unproductive debts that have no positive multiplier effect. If at all she must borrow from within, then such loans must be tied to some specific, viable and growth enhancing projects that could pay its way through.

TABLE OF CONTENTS

Title page i

Declaration ii

Certification iii

Dedication iv

Acknowledgements v

List of tables ix

Abstract x

CHAPTER ONE – INTRODUCTION

1.1 Background of the Study 1

1.2 Statement of the Problem 3

1.3 Objectives of the Study 4

1.4 Research Questions 5

1.5 Research Hypothesis 5

1.6 Significance of the Study 5

1.7 Scope of the Study 6

1.8 Limitations of the Study 6

1.9 Operational Definition of Terms 6

CHAPTER TWO – LITERATURE REVIEW

2.1 Theoretical Framework 8

2.2 Conceptual Framework 17

2.3 Empirical Studies 52

2.4 Summary of Literature Review 54

CHAPTER THREE – RESEARCH METHODOLOGY

3.1 Introduction 57

3.2 Research Design 57

3.3 Sources of Data Collection 58

3.4 Instrument of Data Collection 58

3.5 The population of the Study 59

3.6 Sample and Sampling Technique 59

3.7 Reliability and Validity of Data and Test Instrument 59

3.8 Data Analysis Technique 60

CHAPTER FOUR – DATA PRESENTATION AND ANALYSIS

4.1 Introduction 61

4.2 Analysis of Data 61

4.3 Test of Research Hypothesis 70

CHAPTER FIVE – SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS

5.1 Summary of Findings 72

5.2 Conclusion 72

5.3 Recommendations 73

References 74

Appendix 80

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Debt is an outstanding credit obligation. It refers to payment which must be, but has not yet been paid to somebody. Legally, debt is a choice in action transferable by the creditor to some other person provided that the transfer is in writing and that whole and not merely a part of the debt is so assigned ( Anyafo, 1995).

Public debt is an amount of money owed by the government to institutions, government agencies and other bodies either resident in or outside a country. When debts are owed to residents within a country, it is known as domestic public debt. Specifically in Nigeria, the sources of domestic public debt are the central bank of Nigeria, commercial banks, merchant banks and the non bank public (Nzotta,2004).

It is the objective of every sovereign nation to improve the standard of living of its citizenry and to promote here conomic well being. Due to the scarcity of resources, nations borrow from within and externally to foster economic growth and to achieve sustainable economic development (Adepoju, Salau & Obayelu, 2007). The necessity for governments to borrow in order to finance a deficit budget has led to the development of both internal and external debts (Osinubi & Olaleru, 2006, Obadan, 2004).

By way of definition, domestic debts refer to the portion of a country's debt that was borrowed from within the confines of a country. These loans are usually obtained from the central bank of Nigeria, deposit money banks, discount houses and other non bank financial houses. This study therefore is set to assess the degree to which the different components of domestic debts have impacted on the economic growth of Nigeria over the period 1980-2014.

1.2 Statement of Research Problem

The reliance by the federal government in borrowing from the banking system, particularly the CBN, to finance its large and unsustainable fiscal deficits has hindered the attainment of macroeconomic stability and sustainable economic growth in Nigeria. In addition, this has crowded out the private sector from the credit market, thereby stalling investment and output growth. A review of Nigeria’s domestic debt profile indicates that, it has been on the increase in recent times. Various factors account for the phenomenal rise. This includes the increased financing needs of government for developmental purposes and other socio –economic needs before the advent of the oil boom. There was also the need to finance the large fiscal deficits of the government after the oil boom period. Other factors include the financing gaps in the government revenue-expenditure profile and other financing needs of the government. All these had led to the enhanced domestic debt stock of Nigeria In spite of her continued penchant for domestic loans, Nigerian economy is still characterized by low per capital income, high unemployment rates, dwindling economies, inadequate basic amenities and poor infrastructural developments and falling growth rates of GDP; problems that publicly procured funds are supposed to take care of. Paradoxically; it does not appear as if our craving for domestic loans is in any way commensurate to our low level of economic growth and development.

The natural question that readily comes to mind is: What has our leaders and the political class been doing with the huge sums of money procured on our behalf as domestic debts and how beneficial has these sources of loans been to the economic growth of Nigeria? It is against this background that this study will seek to investigate the various components of our domestic debt profile. This is with a view to ascertaining the usage, to which the proceeds were put, and the direction / significance of the effects of such funds. - That is the crux of the matter!