Foreign Debt, Institutional Quality and Economic Performance in Nigeria: An Experimental Evaluation

Abstract

Nigeria is the largest economy in Africa and the largest exporter of crude oil in Africa, yet Nigeria has a huge foreign debt portfolio and weak institutions. It is against this backdrop that this study examines the impact of foreign debt and institutional quality on economic performance in Nigeria. Data used for the analysis were quarterly data that ranges from 1996Q1 to 2019Q1. Foreign debt service was used as a measure of foreign debt while corruption control and government effectiveness were used as measures of institutional quality. Economic performance which is the dependent variable was measured using Gross Domestic Product. The study also examines how institutional quality influences the relationship between foreign debt and economic performance in Nigeria. Autoregressive Distributed Lag Model was used to specify and estimate the relationship between the variables. The result of the analysis indicates that foreign debt has an insignificant negative effect on economic performance in the short run and also negative insignificant effect in the long run too, corruption control has a significant positive effect on economic performance only in the short run, Government effectiveness does not have a significant effect in the economy, being the two; the short run and the long run, on that account corruption control influences the relationship between foreign debt and economic performance significantly and negatively only in the short run but also positively and insignificantly in long run. Mechanism should be put in place to ensure that foreign debts are properly utilized on the projects they were meant for.