Effects of External Debt on Poverty Reduction in Nigeria (2000-2017)

Abstract

The study examined the effects of external debt on poverty reduction in Nigeria within the temporal scope from 2000 to 2017. Dependent variable which is poverty was proxied by public expenditure on social goods and services (PECS); independent variable was proxied by external debt stock (EDS), debt service payment(DSP) and domestic debt (DMD) while inflation (INF) and exchange rate(EXR) were used for control variable. Secondary data were sourced from CBN Statistical Bulletins and CBN Annual reports of various editions. The study employed various preliminary tests such as Augmented Dickey Fuller Test, Breusch Pagan Godfrey and Breusch Godfrey Serial Correlation LM test while Auto Regressive Distributed Lag was used as the main estimation technique. Following a dual-gap theory as the theoretical underpinning of this study, it was found that, there is significant relationship between external debt and poverty in Nigeria. It was further revealed that, there exists long run relationship among the variables of interest. However, it was found that, in the short run, external debt, domestic debt, exchange rate and inflation reduces poverty as they all had negative signs but in the long run, debt service payment, inflation and exchange rate were found to have negative effect on poverty, which indicates a reduction in poverty. It was therefore concluded that, external debt in the long run, has insignificant positive effect on poverty in Nigeria. It was therefore recommended that, external debt should be utilized efficiently for the purpose it was requested for and at same time in achieving poverty reduction, which is believed it is necessary for the growth of the country, chunk of these funds should be directed towards provision of public social goods and services which invariably in the long run, will helps in reducing the level of poverty and as well enhances the standard of living of the citizens.