Effect of Foreign Debt on Economic Growth in Nigeria

Abstract

Nigeria has been on a foreign debt a rising profile overtime, however it is not commensurable with her developmental purposes; hence this study examined the effect of foreign debt on economic growth in Nigeria for the period of 1986-2022. It used time series data sourced from Central Bank of Nigeria Statistical Bulletins and World Bank Development Indicators. Using descriptive statistics which shows that the data were normally distributed based on Jacque Bera Statistics and its Probability. It applied Augmented Dickey Fuller (ADF) test which revealed that I (1) and (0) order of integration exist among the studied variables which necessitated the adoption of Autoregressive Distributed Lag model (ARDL). The ARDL F- bounds test reveals that long-run relationship exist among foreign debt, foreign debt servicing, exchange rate, inflation rate and economic growth in Nigeria. Furthermore, long-run result showed that foreign debt and exchange rate have positive effect on economic growth and statistically significant in the model except exchange rate that was insignificant. On the part of short-run dynamics, ECM revealed the speed of adjustment that foreign debt variables and economic growth converged back to equilibrium point in 1year and 8 Months period. It also revealed that foreign debt, exchange rate have positive effect on economic growth in Nigeria and statistically significant. Whereas, foreign debt servicing and inflation rate have negative effect on economic growth and statistically significant in the short-run. Therefore, this study submits that foreign debt has positive and significant effect on economic growth within the period of the study. Finally, the study recommended the following policy options for the government, policy makers, and institutions regulators to formulate fiscal policy that will open ways for alternative sources of finance