EuroEconomica, Vol 37, No 3 (2018)

Abstract

This paper examines the impact of security spending and public sector debt on real GDP in Nigeria using annual data from 1994 – 2016. The study explores the long and short-run dynamics amongst the variables within the Autoregressive Distributed Lag (ARDL) framework. The Augmented Dickey Fuller (ADF) and Philip Perron’s (PP) test reveals that all variables contained a unit root and were integrated of order one I(1).  The Bounds test to cointegration confirms the existence of a long-run relationship between security spending, public sector debt and real GDP. The ARDL results suggest that in both long and short-run estimations that an increase in internal security expenditure and domestic debt significantly leads to a rise in real GDP, conversely an increase in defence expenditure and external debt constitutes a fall in real GDP. This study therefore recommends that emphasis should be placed on internal security spending and domestic debt. Again defence expenditure should be greatly reduced especially when compared to a reduction in external borrowings.