External Debt Burden and Infrastructural Development Nexus in Nigeria: An ARDL Approach (1981-2020)

Abstract This study focused on external debt burden and infrastructural development nexus in Nigeria using data spanning between the periods 1981 to 2020 by employing the use of Autoregressive Distributed Lag Model (ARDL) and granger causality test as the major statistical techniques of analysis. From the findings, the coefficient of error correction term shows that about 70 percent of the discrepancy between the actual and the long run or equilibrium value of infrastructural development is corrected or eliminated each year. The coefficient of determination (R2) is 0.680 which shows that about 68 percent variations in the infrastructural development were explained by the independent variables. The Augmented Dickey Fuller (ADF) unit root test shows that all variables were stationary at first difference. The results for the Bounds test reveal that there is a long run relationship among the variables. This is because the F-statistics value (5.194) is greater than upper Bounds critical values at 5% level of significant. The ARDL results show that external debt, domestic debt and inflation rate have a negative impact on infrastructural development in the long run while exchange rate and interest rate has a positive effect on infrastructural development in the long run. Also, domestic debt and exchange rate were found to have a significant impact on infrastructural development while external debt, inflation rate and interest rate were found to be insignificant in the long run. Furthermore, the granger causality test results indicate while there is no causality between external debt and infrastructural development, there seems to be a unidirectional causality between domestic debt and infrastructural growth in Nigeria. The study concludes that federal government of the country should cut down excessive borrowings and that the existing ones are invested in projects that would eventually generate enough returns to defray such debts accordingly. Also, an adoption of policy framework that will ensure macroeconomic stability such as price stability, job creation, increased output, political stability, etc. becomes fundamental in getting rid of heavy reliance on external debt in the country.