Macroeconomic Volatility and its Significance to the Rising External Indebtedness of Nigeria

Abstract

The motivation of this study has been to identify the effects of the multidimensional perspectives of macroeconomic volatility on the growth of external debt in Nigeria from 1970 to 2018. Methodologically, the Auto-Regressive Distributed Lag (ARDL) model and the TodaYamamoto causality approach were adopted. For the purpose of understanding the multidimensional perspective of macroeconomic volatility, macroeconomic volatility was disaggregated into three different perspectives which are: volatility from macroeconomic outcomes, domestic sources, and external sources. Findings from the study suggest that while volatility from macroeconomic outcomes exclusively affects external debt in the long-term, effects from the three sources were very substantial in the short-term. Furthermore, the causality result indicates bidirectional nexus between volatility from macroeconomic outcomes and external debt. Also, the irregular variations in the Nigerian political space, unanticipated disease outbreaks, and the effects of the 1986 recession in the country all significantly worsened the country’s external debt situation. Thus, the study recommended amongst others that since developing countries such as Nigeria cannot do away with the demand for external debt to finance its economic growth, it is also important to count the cost such financing provides even if faster growth is actually realise.