PUBLIC DEBT AND CAPITAL FORMATION IN NIGERIA AND GHANA: A COMPARATIVE ANALYSIS
Anas Ladan Abubakar and Muhammad, Ibrahim Bello
Volume 12 Issue 1
Abstract
This study investigates the impact of public debt on Gross Fixed Capital Formation (GFCF) in Nigeria and Ghana, providing a comparative analysis of how foreign debt shapes capital formation and economic growth in both countries. Using timeseries data and the ARDL modeling technique, the findings reveal that public debt positively influences GFCF in both countries, with a stronger effect in Ghana. In Ghana, national savings contribute positively to capital formation, while in Nigeria, the impact is weak and negative, highlighting disparities in savings mobilization and utilization. Interest and exchange rates exert a more significant influence in Nigeria, though with mixed effects, whereas Ghana demonstrates a more stable macroeconomic relationship. The results underscore the critical role of public debt in driving investment, especially in Ghana, and confirm the presence of effective error correction mechanisms in both countries. Ghana’s model also shows higher explanatory power, suggesting a better alignment between its economic variables and capital formation. Based on these insights, the study recommends that Nigeria prioritize the efficient use of public debt, enhance savings mobilization, and work toward exchange rate stability. For Ghana, the focus should be on strategic allocation of debt to development projects, boosting national savings, and maintaining macro-stability to attract investment. Future research should delve into sector-specific effects, the role of governance, and conduct regional comparisons to inform broader strategies for capital formation across Africa. Keywords: Public Debt, Capital Formation, Nigeria, Ghana
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