ABSTRACT

This study examines the impact of foreign debt on economic growth in Nigeria with the background of the two-gap model which is usually the theoretical basis for borrowing externally. The specific objectives of the study were to examine the impact of multilateral debt bilateral debt and debt servicing on economic growth. The study was modelled using Autoregressive Distributed Lag (ARDL) regression model which captures the effect of lags as well as the short run and long run impact of external debt on economic growth. Annual time series data from 1982 to 2020, sourced from the CBN statistical bulletin and World Development Indicators (WDI) was used for the model estimation and analysis. The result of the study shows that bilateral debt has a significant negative impact on economic growth both in the short run and the long run while multilateral debt has significant positive impact on economic growth only in the long run. Other variables in the model which were worked out from the two-gap model were import and interest rate. The result shows that import had no significant impact on economic growth within the period of this study both in the short run and the long run while interest rate has a positive impact on economic growth only in the short run. It is concluded that since different categories of external debt impact differently on the Nigerian economy, the observed impact of external debt on economic growth in Nigeria could be traced to how funds from borrowing are utilized and the borrowing terms and conditions. It is recommended that the borrowing mix should contain more of multilateral debt than bilateral debt.