Debt management and economic development of Nigeria: ARDL approach

Igbasan Emmanuel Duyile; Igbekoyi Olusola Esther; Oladutire Elijah Oladeji

doi:10.65453/ijar.v9i2.1225

Authors

Igbasan Emmanuel Duyile
Igbekoyi Olusola Esther
Oladutire Elijah Oladeji

DOI:

https://doi.org/10.65453/ijar.v9i2.1225

Keywords:

Debt management, economic development, ARDL approach, gross capital & external borrowings

Abstract

This study examines the effect of debt management on economic development in Nigeria using the ex-post facto research design as data for the variables were derived from secondary data sources. Specifically, annual data are obtained from the debt management bulletin, CBN statistical bulletin, and World Bank Development Indicators from 1980–2021. To reduce skewness, all the variables are transformed into their natural logarithmic form. The dependent variable in this study is gross capital formation (GCFM) while the independent variables are external debt stock (EXDB) and total debt servicing (TDSV). Autoregressive Distributive Lags (ARDL) model of Pesaran, Schuermann, and Weiner (2004) is used in this study to test the hypotheses. The result reveals that external debt stock [coeff. 0.347 (0.000)] has a positive and significant effect on the economic growth of Nigeria when measured in terms of gross capital formation in the long run but no relationship in the short run. Furthermore, the result shows that total debt servicing [coeff. -2.279 (0.001)] has a negative and significant effect on the economic growth of Nigeria when measured in terms of gross capital formation in the long run but no relationship in the short run. The study concludes that an increase in the external debt stock will significantly increase gross capital formation as a measure of economic development during the period under study. However, the study concludes that debt servicing has a negative and significant effect on the economic growth of Nigeria when measured in terms of gross capital formation in the long run but no relationship in the short run. Based on the findings of this study, we recommend that a sound borrowing policy should be enacted by the Debt Management Office in collaboration with the legislature in order to impose a legal limit on external borrowings. The policy should be subject to review so as to meet the predominant realities of the economy. A condition where the executive arm of government has a free hand to borrow funds from the external sources as much as they wish will not go down well with the economy.

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