External Debt Burden and its Determinants in Nigeria: An ARDL Cointegration Technique

Abstract

This study focuses on the empirical determinants of external debt burden in Nigeria from 1973 – 2013 using Autoregressive Distributed Lag (ARDL) Cointegration Technique. Findings from the study reveals that consumer price index (CPI), interest rate on external debt (IR), gross domestic product (GDP), and money supply (M2) are cointegrated with external debt (ED) in both the short-run and long-run within the study period. The result also indicates that, CPI and IR are negatively correlated with ED. Whereas GDP and M2 reveals a positive relationship with ED. The coefficient of ECM is also consistent with the rule of thumb which suggests that, the coefficient of error correction term (ECT) should be negative, less than one in its absolute value and significant. Nigeria’s external debt burden can be settled through economic diversification such as massive investment in agricultural and solid minerals sectors, boosting internally generated revenues (IGRs) and reducing overdependence on oil revenue.

Keywords: External debt, Interest rate, Money supply, Inflation, Gross Domestic Product, ARDL