Analyses of the impact of external debt on economic growth in Nigeria (1981–2023)

This study examines the influence of external debt on Nigeria’s economic growth. Data were sources were the Central Bank of Nigeria's Statistical Bulletin and World Bank. The exogenous variables utilized were the exchange rate, external debt stock, and debt service, whereas the endogenous variable was the real gross domestic product (RGDP). The study covers the period from 1981 to 2023, preliminary tests such as trend analysis, unit root (stationarity) tests, and cointegration tests were conducted. The unit root test results revealed that the entire variables were integrated at the first difference, I(1), without cointegration. Consequently, the Vector Autoregressive (VAR) model was deemed appropriate for the analysis. The VAR estimation results indicate that the coefficient of the first lagged value of RGDP has significant positive effect on its current value. However, the coefficient of the first lagged value of external debt is negative and insignificant, with a coefficient of -0.001817. Similarly, the coefficient of the first lagged value of debt service is also negative and insignificant, at -0.015863. In contrast, the coefficient of the first lagged value of the real exchange rate is positive but insignificant, with a coefficient of 0.063724. From these findings, the study advocates that the government implement policies to entice foreign direct investment (FDI) to reduce over-reliance on external debt.