External Debt and Poverty Nexus in Nigeria

Authors: Uzoma Chidoka Nnamaka & Odungweru Kingsley

1. Rivers State Universal Basic Education Board, Port Harcourt, Nigeria
2. Department of Economics, Faculty of Social Science, Rivers State University, Port Harcourt, Nigeria


Insufficient funds stemming from low productivity and low savings have caused developing economies to embark on external borrowing to foster growth and improve the standard of living of the citizens. This study therefore examined the effect of external debt on poverty in Nigeria for the period 1981 to 2019 using ARDL cointegration technique to analyses data sourced from the CBN and World Bank. Based on empirical results; the ADF stationary test showed that all the variables attained stationarity after first difference except inflation rate which was integrated at order zero. The external debt and poverty rate were positively related in both the long run and short run. While the long run revealed an insignificant relationship, a significant relationship was observed in the short run. The rest of the variables; debt service and inflation showed evidence of positive and insignificant relationship with poverty rate both in the long run and in the short run period. The goodness of fit was robust and reasonable in explaining changes in poverty level and the coefficient of ECM confirms that in the event of shock or disequilibrium, the situation would go back to normal at the speed of 0.16 percent per annum. The post-estimation test result shows that the estimated parameters are normally distributed, have no serial correlation issues, no heteroscedasticity problems, and no specification errors and are stable over time and as such can produce a reliable forecast. Based on these results, the study recommends: the diversification of the productive base of the nation to boost domestic capital formation needed for investment, prudent utilization of borrowed funds to reduce poverty to the barest minimum and more efficient debt management strategies to ensure that borrowed funds are directed to more productive channels in the economy to stimulate growth and improve the living standard of people.