Pensions and Gratuities, Public Debt Servicing and Economic Growth of Nigeria An ARDL Approach

Abstract

Government expenditure across the globe is generally intended to enhance citizens’ welfare through the provision of public goods and services and thus, induce growth of economies. Pensions and gratuities as well as public debt servicing are classified under transfer expenditure of government. Thus, this study broadly examined the effects of pensions and gratuities and public debt services expenditure on economic growth of Nigeria for the period 1981-2020.  The time series data for the study period were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin as well as the National Bureau of Statistics (NBS). Real Gross Domestic Product (RGDP) served as the dependent variable while Government expenditure on pensions and gratuities (GEXPGR) and Government expenditure on public debt servicing (GEXPDS) served as independent variables. Inflation rate was introduced in this work as a control variable to ensure the robustness of the study. The Augmented Dickey-Fuller (ADF) unit root test technique was employed to test the stationarity of the variables in the model. The result revealed a mixed order of I(0) and I(1). Thus, the Auto-Regressive Distributed Lag (ARDL) Bounds test was adopted to test the long-run relationship (co-integration) among variables and estimate the long-run and short-run dynamics of the analysis. The findings of the study revealed that government expenditure on pensions and gratuities, and debt servicing had positive and significant effects on the economic growth of Nigeria in the long-run. In the short-run, government expenditure on pensions and gratuities had a positive and significant effect on economic growth of Nigeria while public debt servicing was found to be positive but non-significant. Inflation rate was found to have negative and non-significant effects on the economic growth of Nigeria in both the short and long-run for the period studied. The study therefore recommended that the Nigerian government should sustain and improve budgetary allocations to pensions and gratuities to guarantee relative comfort among pensioners and at the same time, ensure adequate and regular servicing of both domestic and external debts to induce further growth in the economy.