External Sector and Gross Domestic Product Per Capita in Nigeria

Abstract

This study examines the effects of external sector on Gross Domestic Product Per Capita in Nigeria over the period 1988 to 2023. The independent variables include the real effective exchange rate, foreign direct investment, external debt, and the balance of payments, while GDP per capita was used as the outcome variable. Data for the study were sourced from the World Bank and CBN. The study employed the Autoregressive Distributed Lag (ARDL) estimation technique to analyze both short-run and long-run relationships among the variables. Empirical findings revealed that in the long run, the foreign direct investment, the real effective exchange rate, and external debt indicated a positive but not statistically significant influence on GDP per capita while the balance of payments exert a positive and statistically significant. Based on the results, the study recommends, among other things, that the Nigeria government should prioritize strengthening its balance of payments, as it is the only statistically significant driver of GDP per capita. This can be achieved by diversifying exports beyond oil into manufacturing, agro-processing, and services, while reducing non-essential imports.