Eternal Debt and Economic Growth in Nigeria: An ARDL Approach

The paper examines the impact of external debt on economic growth in Nigeria by taking a critical look into its origin and the process of its metamorphosis to the state of unsustainability before after the debt relief in June 2005. The secondary data collected from Central Bank of Nigeria and World Bank database between 1981 and 2016 were subjected to an ARDL method of analysis to determine both the short and long-run periods. The results show that ratio of external debt to gross national income, ratio of reserves to total debt and foreign exchange rate have a minimal long run positive effect on growth. Also, in the short run, all variables have positive effect on growth except foreign exchange rate which has negative impact. The Error Correction Model shows that there is 106 percent increase over the previous year growth. In conclusion, it is evident that for debt to be productive it requires effective management which will make the rate of return higher than the cost of debt servicing. In spite of this, the study recommends among others, that to achieve a long-term solution to the external debt problem, the spending must be of high priority and use on productive self-liquidating investment.