Domestic and Foreign Debt Dynamics and Nonlinear Effects on Private Investments in Nigeria: Evidence with Asymmetric ARDL and Causality

Abstract

The ultimate goal of the study was to determine the asymmetric and dynamic effects of public debt on private investment in Nigeria from 1990 to 2019. Because of the nature of data stationarity, the study then adopted the Nonlinear Autoregressive Distributed Lag (NARDL) modelling technique, which can produce both long-run and short-run parameter estimates of negative and positive decomposed values of domestic and foreign investment. The study used the Augmented Dickey-Fuller (ADF) test to ascertain the true order of integration for the study variables. The findings for the NARDL model showed a stable long-run cointegration among private investment, domestic debt, foreign debt, economic growth, inflation and real exchange rate for the study period. The results show an asymmetric relationship between domestic and foreign debts and private investments in the long run. The estimated results further show that private investment is a significant positive function of positive and negative changes in foreign debt, and a significant negative function of positive and negative changes in domestic debt in the long run, while there were significant instant positive s on impacts on domestic and foreign debt shocks in the short-run.