The Growth Effect of External Debt in Nigeria: Does Structural Break Matters?

Abstract

The volatility in crude oil price in the global market has continuously heightened fiscal deficits in Nigeria, a net exporter of crude oil. Consequently, successive governments have often resorted to external borrowing to augment the available fiscal revenue. This has implications for economic growth. Therefore, this study evaluated the growth effect of external debt and accounted for structural break in the external debt-growth nexus in Nigeria. Annual data spanning 1981-2020 were sourced from global databases and analysed using the dynamic ordinary least square (DOLS) estimator. The result showed that external debt has growth-inhibiting effects on the Nigerian economy and that structural break matter in the analysis of the growth effect of external debt in Nigeria. The results imply that Nigeria needs to lower its external debt due to the high cost of debt servicing that accompany such debt while also improving the revenue-generating ventures in the country.