Effect of Global Commodity Prices on External Debt in ResourceDependent Economies: Evidence from Nigeria

Abstract

This paper examines the effect of global commodity prices, proxied by crude oil price, exchange rate and excess crude account on external debt in Nigeria over the period 1990–2022. Using a country-level time-series framework, the study proposes and implements Autoregressive Distributed Lag (ARDL) bounds testing and error-correction modelling to identify short-run and long-run relationships between oil price shocks and Nigeria’s external debt stock, exchange rate, and excess savings account. Using the external debt stock as the dependent variable and oil price, exchange rate, and ECA as independent variables, the study found that there is a positive and significant relationship between the dependent variable and the independent variables. The study concluded that the external debt is influenced by the external crude oil prices, exchange rate and the ECA over the period. Amongst others, the study recommends the prudent financial management of crude oil revenue during windfalls.