EXTERNAL DEBT BURDEN AND ECONOMIC GROWTH IN NIGERIA

Abstract

This study investigates the impact of external debt burden on economic growth in Nigeria over the period 1996Q1 to 2022Q4, utilizing the Autoregressive Distributed Lag (ARDL) modelling approach. The analysis incorporates key variables such as gross domestic product (GDP), external debt (EXD), gross fixed capital formation (GFCF), human capital index (HCI), trade openness (TOP), exchange rate (EXR), and institutional quality (INQ). While external debt does not exhibit a significant short-term influence on GDP growth, the results reveal a positive and significant impact of factors like GFCF, HCI, TOP, and INQ on economic expansion in the short run. Conversely, the long-run analysis indicates that external debt exerts an insignificant effect on GDP growth, while GFCF and TOP emerge as significant positive drivers, and EXR displays a negative relationship. These findings challenge the applicability of the Debt Overhang Theory in the Nigerian context and underscore the importance of prudent debt management strategies, investment promotion, trade diversification, exchange rate stability, and institutional quality enhancement for fostering sustainable economic growth in Nigeria. Based on these findings, the study recommends that policymakers prioritize strategic debt management, investment in productive sectors, promotion of trade openness, maintenance of exchange rate stability, and strengthening of institutional frameworks to optimize the utilization of external debt and spur long-term economic growth.