External Debt and Economic Growth in Nigeria
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Abstract
Over the past few years, Nigeria has experienced a rapid increase in external debt, leading to widespread public concern about its potential effects on the country’s economic growth. This study employed an ex-post facto research design to examine the relationship between external debt and economic growth in Nigeria from 1983 to 2022. Data for the study were sourced from the World Bank Development Indicators (WDI) and analyzed using the Autoregressive Distributed Lag (ARDL) model. The findings indicated the existence of a long-run relationship among the variables. The long-run estimates of the variables employed in the study—external debt stock (EDS), debt service on external debt (DSED), inflation rate (INF), and exchange rate (EXR)—on economic growth were as follows: β = 0.0753, t = 0.8102, p > 0.05; β = -0.0935, t = -1.7669, p > 0.05; β = -0.0281, t = -9.0746, p < 0.05; β = 0.1209, t = 4.6602, p < 0.05, respectively. The study concluded that external debt has no significant effect on economic growth in Nigeria. It recommended that policymakers should ensure loans are properly monitored and eliminate leakages in the system. Additionally, loans should undergo a comprehensive cost-benefit analysis to ensure that the benefits of the investments exceed the costs associated with debt servicing.
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