Impact of Domestic Public Debt and Institutional Quality on Financial Development in Nigeria

Abstract

This paper analyses the impact of domestic public debt and institutional quality on financial development in Nigeria, using time series data for the period of thirty-seven (37) years (1980-2017). In analyzing the data, the paper uses Autoregressive Distributed Lag (ARLD) model and the result indicates that domestic public debt composition has significant negative impact on financial development in Nigeria. However, the interaction between domestic public debt composition and institutional quality has significant positive impact on financial development. The study concludes that domestic public debt in the presence of strong institutional quality promotes financial development. The main recommendation of the study is that government should strengthen financial and political institutions. This is expected to reduce risk, increase stability and efficiency of the financial system. Policy makers should also control spending, manage debt and maximize domestic revenue collection.