IMPACT OF EXTERNAL DEBT ON ECONOMIC GROWTH IN NIGERIA
Abstract
The study examined the impact of external debt on economic growth in Nigeria. The broad objective of this study is to ascertain the impact of external debt on economic growth in Nigeria. Gross Domestic Product is the dependent variable while the independent variables include external debt, external debt service payment and exchange rate. The Augmented Dick Fuller (ADF) unit root test showed that one of the variables employed is stationary at levels while the rest of the variables are stationary at first difference. The ARDL technique was employed. The bond test for cointegration reveals that there is an existence of a long run equilibrium relationship among the variables. The empirical analysis reveals that external debt has a positive and significant effect on the Gross Domestic Product in Nigeria at Lag 3. This implies that an increase in external debt by 1% will bring about an increase in Gross Domestic Product in Nigeria by 0.094961, also, since, it has a significant effect on Gross Domestic Production (GDP), we conclusively reject the null hypothesis and accept the alternative hypothesis, stating that external debt has a significant effect on Gross Domestic Product (GDP) in Nigeria.Also from the above table, external debt service has a negative and insignificant impact at Lag 1 on Gross Domestic Product in Nigeria. This implies that an increase in external debt service by 1 percent will bring about a decrease in Gross Domestic Product in Nigeria by 0.003378, also, it has an insignificant effect on Gross Domestic Product (GDP), it will conclusively accept the null hypothesis and reject the alternative hypothesis, stating that external debt has an insignificant effect on Gross Domestic Product (GDP) in Nigeria. Based on the findings, the study recommends that external debt should be contracted solely for economic reasons and not for social or political reasons. This is to avoid accumulation of external debt stock overtime and prevent and obscuring the motive behind external debt and also the government should promote exportation of domestic products as a high exchange rate will make our goods more attractive in the foreign market and will increase foreign exchange earnings.
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