The paper analyses the growth effects of the current domestic debt outstanding as a ratio of GDP and the growth effects of the past domestic debt accumulation, using Nigerian time series data for the period, 1970-2003. The results show that current domestic debt outstanding as a ratio of GDP has a significantly negative effect on economic growth, due largely to high implicit domestic interest rates-on average, a one percent increase in current domestic debt outstanding as a percentage of GDP reduces economic growth by 0.38 percent. On the other hand, past domestic debt accumulated positively and significantly affects economic growth–a one percent increase in past-accumulated domestic debt as a percentage of GDP increases economic growth by 0.30 percent-thus rejecting the domestic debt overhang hypothesis. The results also show that current domestic debt reduces economic growth mainly by lowering the efficiency of investment rather than its volume. The paper concludes with some policy implications.