External Debt Burden, Exchange Rate Fluctuations and Economic Development in Nigeria
Abstract
The study examined the effect of External Debt, Exchange Rate and Economic Development in Nigeria from 1981 t0 2021 using time series data. The study decomposed human development index in Nigeria (HDI) as dependent variables, External Debt to Gross Domestic Product (EXDGDP)Ratio, External Debts to External Reserve in Nigeria (EXDER) ratio, External Debts to Export (EXTDEX) ratio, and Exchange Rate Fluctuations (EXRF) were used as the main explanatory variables while the Interest Rate (INTR) and Inflation were employed in the study as the control variable in the models. Descriptive statistics, Unit Roots Test, Johnsen Cointegration Test, Over Parameterized Error Correction Mechanism. Post Estimation Test, Generalized Autoregressive Conditional Heteroskedasticity (GARCH) and EGARCH were used to analyze the data. The result reveals that external debts burden on external reserves has been on unstable effect on economic development in Nigeria and stabilize it there is a need for prudent management of nation’s wealth at all levels of Government to reduce the contraction of external debts. The positive effect of external debts on gross domestic product to great extent connotes that external debts also served as a driver of economic growth in Nigeria. Exchange rate fluctuation is a negative driver of economic development in Nigeria. Based on these findings. The study recommends that reduce the depletion of external reserves to service external debts. The use of gross domestic product to service external debts should be curtains, efforts should be made to increase export trade in Nigeria so as to increase the volume of revenue accruable from it, the financial institutions should try to reduce the interest rate to a single digit to encourage borrowers and increase income for fiscal operations, which will have a reducing effect on the external debt and there should be drastic efforts to reduce the exchange rate of the dollar to the naira in Nigeria.