EFFECT OF EXTERNAL DEBT ON GDP AND EXCHANGE RATE IN NIGERIA, 1986-2018

The recent clamour by Nigerian government for external borrowing has necessitated the investigation of effect of external debt on real GDP and exchange rate in Nigeria. It covered a period of 33 years (1986-2018) and used annual time series secondary data extracted from the Central Bank of Nigeria (CBN) Statistical Bulletin, 2018 edition, and other published materials. Research design adopted was ex-post facto research design. Analytical tools employed was Autoregressive Distributed Lag (ARDL) multiple regression analysis techniques with a battery of diagnostic tests such as Phillips-Perron (PP) unit root test, Pearson correlation, and Jarque-Bera test of goodness-of-fit (normality). The stationarity test established that the variables are of mixed integration of order zero, one and two. However, result of the ARDL revealed that external debt exert negative and insignificant influence on real GDP growth, with a positive and statistically insignificant effect on exchange rate behaviour in Nigeria. The implication of the finding is that increased external borrowing (external debt) retards the growth of real GDP and promotes depreciation of naira in favour of US dollar. In conclusion therefore, external borrowing is not favourable to Nigerian GDP growth and naira appreciation for the period. On this background, it was recommended among other things that Nigerian government should work towards increasing her capital investment horizon internally instead of using borrowed funds to finance the key developmental indices