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Foreign Debt and Economic Growth in Nigeria

Urhie, Great Esiso, Prof Osuji, Casmir Chinemerem

Abstract

This study investigates the impact of foreign debt on the economic growth of Nigeria over a 32- year period (1992–2023), employing an ex-post facto research design. The analysis focuses on four key foreign debt indicators: Foreign Debt Stock (FDS), Foreign Debt Service Payment (FDSP), Foreign Debt to Export Ratio (FDER), and Foreign Debt to GDP Ratio (FDGDR), with Real Gross Domestic Product (RGDP) serving as the proxy for economic growth. Secondary data were sourced from credible institutions, including the Central Bank of Nigeria (CBN) Statistical Bulletin and the World Bank Data Bank. A series of diagnostic and econometric tests were conducted, including Descriptive Statistics, Correlation Matrix, Variance Inflation Factor (VIF), Jarque-Bera Test for normality, Breusch-Godfrey Serial Correlation LM Test, Breusch-Pagan- Godfrey Heteroskedasticity Test, Ramsey RESET Test for model specification, Group Unit Root Test, and Johansen Cointegration Test to ensure robustness of the regression model. The data were analyzed using Robust Least Squares regression through E-Views 9.0 software. The findings revealed that FDS has a statistically significant and positive impact on RGDP, suggesting that foreign borrowings, when productively deployed, can stimulate economic growth. Conversely, FDGDR exhibited a significant negative relationship with RGDP, implying that excessive debt relative to GDP could hamper growth. FDSP and FDER were found to have no statistically significant effect on economic growth. These outcomes highlight the critical need for sustainable debt practices. The study recommends strategic debt management, export sector strengthening, and the implementation of long-term debt restructuring policies. This research adds to the empirical literature by providing a comprehensive time-series perspective on debt-growth dynamics in Nigeria, offering insights for national policymakers and international financial institutions.

Keywords

Foreign DebtDebt StockDebt Service PaymentExport Ratio and Real Gross

References

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