Abstract
This study examined the relationship between domestic debt, investment, and economic growth
in Nigeria using annual time series data. The study employed the Augmented Dickey–Fuller
(ADF) unit root test, the Autoregressive Distributed Lag (ARDL) model, and the Bounds testing
approach to cointegration in order to analyze both the short-run and long-run dynamics among
the variables. The unit root results revealed mixed stationarity among the variables, as some
were stationary at level while others became stationary after first differencing, thereby
justifying the use of the ARDL technique. The bounds test results confirmed the existence of
long-run relationships among the variables in both the investment and economic growth
equations. The long-run investment equation showed that real interest rate, export
performance, inflation rate, and employment positively influenced investment in Nigeria, while
the ratio of domestic debt to government revenue exerted a negative effect on investment. The
results further revealed that real interest rate, export performance, and employment
significantly influenced investment, while inflation and domestic debt to revenue ratio were
statistically insignificant. Similarly, the long-run GDP equation indicated that infrastructure
development, technological advancement, domestic debt to revenue ratio, and human capital
development positively influenced economic growth in Nigeria, whereas the ratio of domestic
debt to GDP and real exchange rate negatively affected economic growth. Among these
variables, infrastructure development, human capital development, and exchange rate were
found to be statistically significant determinants of economic growth in the long run. The study
concludes that while domestic debt can support economic growth when effectively managed
and channelled into productive investment.