THE IMPACT OF EXTERNAL BORROWING ON NIGERIA'S ECONOMIC GROWTH: EVIDENCE FROM 1981–2017 USING ARDL

This study empirically examines the relationship between external borrowing sources and economic growth in Nigeria, using time series data from 1981 to 2017 obtained from the Nigerian Bureau of Statistics, Debt Management Office, and Central Bank of Nigeria. The study considers Nigerian external financing sources—Multilateral Financial Institutions (MFIs), London Club of Creditors (LCCs), Paris Club of Creditors (PCCs), Promissory Notes (PNs), and Others—as exogenous variables, with Real GDP as the endogenous variable. Data were analyzed using the Autoregressive Distributed Lag (ARDL) bounds testing approach and cointegration techniques, supplemented by diagnostic tests including normality, autocorrelation, heteroskedasticity, and Breusch-Godfrey LM tests to confirm model reliability. Findings indicate a significant short-run and long-run relationship between external borrowing and economic growth. In the short run, MFIs and Other borrowings had significant negative effects, while PNs contributed positively but insignificantly. Paris Club and London Club borrowings had insignificant negative effects. In the long run, only borrowing from MFIs showed a significant positive impact, whereas other sources exhibited insignificant negative contributions. The model’s disequilibrium corrected at an annual speed of 26.90%. The study recommends prioritizing external borrowing from MFIs to maximize positive growth impacts, with careful consideration of Promissory Notes in the short run, and emphasizes the prudent utilization of borrowed funds for sustainable economic development