THE NEXUS BETWEEN DEBT, CORRUPTION AND ECONOMIC PERFORMANCE IN NIGERIA

Abstract

The empirical study based on the Vector Error Correction Model (VECM) examines both short-term and long-term relationship between domestic debt, external debt, corruption and economic performance in Nigeria. Data from 1999 to 2023 was used to investigate the impact of domestic and external debt on economic performance, as well as the moderating role of corruption on economic performance. The findings showed that external debt has significant positive effects on economic performance which implies that strategic borrowing from external sources can contribute to economic expansion and development in Nigeria. Internal debt however has a negative impact probably due to debt overhang. Corruption has a positive exacerbating effect on GDP. The study also reveals that the positive effects of external debt on economic performance are reduced by corruption, suggesting that corruption undermines the effectiveness of debt financing in promoting economic performance. The results have important implications for policy makers in Nigeria as it highlights the need for effective debt management strategies, corruption reduction measures and prudent fiscal policies to promote high economic performance.