Public Debt Optimal Threshold-Infrastructural Development Nexus: The Nigerian Experience Using Hansen Threshold Technique
Keywords:
Public Debt, Infrastructural Development, Hansen Threshold TechniqueAbstract
The question of optimal threshold has been extensively examined in literature for both country-specific studies and panel studies with respect to the public debt-economic growth threshold nexus without considering infrastructural development which is an integral part of economic growth and development. It is on this basis this paper investigated the threshold at which public debt improves infrastructural development in Nigeria on the assumption of non-existence of structural breaks in the country using Hansen threshold technique. Sources of data for all the selected variables were derived through secondary sources while the Autoregressive Distributed Lag (ARDL) unrestricted version for Bound test was employed whose findings later revealed that cointegration exists among the studied variables in Nigeria. Empirically, the threshold regression analysis result showed that a public debt threshold level of 62.5% is needed for adequate infrastructural development (INFRAD) in Nigeria. The reason being that the threshold level of 62.5% falls within the recommended limit of 70% public debt-to-GDP ratio, as set by the International Monetary Fund (IMF) and the World Bank for countries in the Economic Community of West African States (ECOWAS) sub-region peer group of which Nigeria is not an exemption. The results suggest that adherence to this debt-to-GDP ratio limit can enhance the chances of attaining sustainable and inclusive economic growth through adequate investments in infrastructural development. The study thus concluded that for adequate infrastructural development to be attained in Nigeria, a threshold of 62.5% is required.
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