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Modelling the Nexus between External Debt Burden and Economic Growth in Nigeria: The ARDL Methodology

This paper ascertains the nexus between external debt burden and economic growth in Nigeria by specifically evaluating the nexus and effect of external debt burden on gross domestic product and index of industrial. To achieve these objectives, we employed the ordinary least square method of estimation and granger causality test in which variations in gross domestic product and index of industrial production were regressed on external debt burden using time series data from 1981 to 2015. Secondary data casing the time frame were collected from Central Bank of Nigeria statistical bulletin. Our estimated output suggests that there is a long run nexus between external debt burden and economic growth in Nigeria. Again, external debt burden has no significant effect on gross domestic product and index of industrial production. Gross domestic product and index of industrial production have positive insignificant relationship with external debt burden. This leys credence to the dual gap theory which expresses economic growth as a function of investment, and for investments to be successfully executed, there must be domestics saving which is lacking in emerging economies. Relying on our estimated results, we are of the opinion that external debt should be contracted solely for economic reasons and not for social or political reasons as the case in Nigeria. Though external loan is not an evil, but to enhance our industrial performance, industries oriented policies should be initiated and implemented. Fund borrowed externally should be channeled to capital expenditures which improves the manufacturing capacity, generates employments and reduced poverty.