External Debts and Economic Growth: Evidence from Nigeria

Abstract

This study examined the relationship between external debts and economic growth for sustainable capacity building in Nigeria, using annual time series data spanning from 1981 to 2022. Autoregressive Distributed Lag (ARDL) Bound technique, ARDL cointegration form and Granger causality were employed for the research analysis. The results of the study confirmed that there was evidence of long-run relationship among the variables employed in Nigerian economy. The study discovered that only foreign reserves (FRES) has positive and significant long-run impacts on economic growth (GDP). The results showed that none of the variables has significant short-run impacts on Nigerian economy growth. The Granger causality revealed that it is external debt and interest rate that granger caused economic growth (GDP), while (GDP) granger caused only openness of trade. A bidirectional causality was established between openness of trade and economic growth within the period of study. Based on the research findings, the study recommends that government should discontinue from taking unproductive loans and bonds in order to reduce excessive debt servicing in order to sustain capacity building at all levels and to encourage trade openness to boost internal and external trade in order to enhance sustainable growth and development of the country.