ABSTRACT

This thesis investigated the effect of public borrowing on fixed capital formation in Nigeria. For the purpose of the study,data on domestic debt, external debt and gross fixed capital formation were collected from secondary sources - majorly the CBN statistical bulletin and World Bank online database. The collected data was analyzed using descriptive statistic, Auto-regressive Distributed Lag, Co-integration and Granger Causality method. However, the data analysis waspreceded by a diagnostic test using ADF and PP methods to ensure that the data set was stationary. The findings showed that domestic borrowing has a positive effect oncapital formation while external debt has a negative effect onformation capital development. The results also show that on the long run, domestic debt has a positive effect on formation capital while external debt has a negative effect. The results of the Granger causality test show that domestic debt has a uni-directional causality effect on formation capital. Finally, the findings indicateuni-directional causality between external debt and formation capital.Based on the findings, it was concluded that: Domestic borrowing helps to increaseformation capital.However, external borrowing has done more harm than good to the Nigerian economy. Both domestic and external borrowing causes change formation capital. In view of the above, it is recommended that: Domestic borrowing should as much as possible be used in place of external borrowing to fund formation capital. Stringent measures must be put in place to ensure that all external borrowing are not only tied to specific projects but also that such projects are closely monitored from start to finish to forestall the problem of diverting funds.