Responsiveness of Industrial Growth to External Debt Question in Nigeria

Abstract

A high level of industrial growth is associated with higher economic growth and development. Still the argument remains whether this mechanism is sustainable in Nigeria, given the low level of access to external capital flows and low domestic capital investment. The study, therefore, employed Autoregressive Distributed Lag Model (ARDL), variance decompositions, and impulse response functions to examine the long-run effect of external debt on industrial growth in Nigeria. The study used time series data from 1985 to 2019, and the findings reveal that external debt has a negative and significant effect on industrial growth in the long run. The evidence from the sensitivity analysis also indicated a negative response of industrial growth to external debt. Consequently, policymakers in Nigeria must ensure effective management of external borrowing through evidence-based policies on external debt and domestic capital formation that can create enabling business environment and stimulate investors’ confidence to accelerate real industrial growth in Nigeria.