External Debts and Economic Growth in Nigeria: An Empirical Study Using Autoregressive Distributed Lag Model

This paper models some economic theories which explained the casual relationship between accumulated funds/loans from external sources (external debts) and economic growth with a more focus on Nigerian economy, as it is a usually trend for debts of third world and developing countries debts profile to be high, and this case is also the same with Nigeria as the country debts profile is on the increase once more after the debt cancellation of 2005 by the Paris Club of creditors. Also, the addition to empirical studies on this topic by this study is the use of Autoregressive Distributed Lag (ADL) model to capture the effect of externals debts on viability and growth of Nigerian economy from 1984-2012. The preliminary and normality tests show that all variables used in the study are positively skewed but are not normally distributes. For more diagnostic analysis of the dataset, econometric tests of stationarity (Unit Root Test) and co-integration tests were employed to avoid a spurious regression. The results of these tests indicated that all the variables exhibit Stationarity at first differenced, and also the Johansen Co-integration test shows the existence of long-run relationship between the variables. The result from the ADL model confirms the existence of a dual behaviour and effect of External Debts on Nigeria Economy. The lag 1 of external debts i.e Debts from previous, has positive effect while external debts of present year posed a negative effect on the performance of the economy. The recommendations of this study are that Nigeria government should ensure that debts incurred are channel towards productive uses and debt management office of the government should strengthen its plans and foster appropriate use of loans in the critical area the need for is identified.