EXTERNAL DEBT AND MACROECONOMIC VARIABLES PERFORMANCE IN NIGERIA

ABSTRACT

The impact of external debt on economy growth has generated lots of empirical studies with different findings. External debt is generally believed to be positively related with economic growth. More precisely, it is held that appropriate External debt if appropriately utilised can be a device of long term sustainable economic growth, by accumulating more capital. However when external debt is excessive and/or inappropriately utilised. It can inimical to economic growth. In view of recent rising of external debt profile of Nigeria. The main objective of this study is to ascertain the influence of external debt on macroeconomic variables such as balance of payments, unemployment rate, inflation rate, exchange rate and economy growth. This study has empirically examined how external debt influences macroeconomic variables in Nigeria using annual time series data for the period 1981-2019. The variables considered are balance of payments, external debt, unemployment rate, inflation and real exchange rate as independent variables. Augmented Dickey-fuller (ADF) test was used for the unit root test and the variables were found to be stationary at second difference. Then Johansen (1988) technique was used to establish if the stationary variables are co-integrated. Further, ECM is employed to correct any form of disequilibrium in the short run. The result of stationarity and normality test reveals that the model is fairly well specified and could be used for policy analysis. The analysis was based on data extracted from Central Bank of Nigeria (CBN) statistical bulletin and World Development Indicators (WDI). The result of the analysis shows that all the variables except balance of payments and unemployment rate were all statistically significant at 5%. The study therefore suggest that the government should adopt debt management policies capable of stimulating macroeconomic variables performance as well as maintain a stable exchange rate which will set the country on the part of sustainable growth and development.