Debt Burden and Economic Growth in Nigeria: Evidence from ARDL Approach

This study re-examines the debt–growth nexus in Nigeria by embedding external debt dynamics within an endogenous growth framework that explicitly incorporates investment as a transmission channel and institutional quality as a moderating factor. Using annual data from 1996–2023 and the Autoregressive Distributed Lag (ARDL) approach, the analysis captures both short-run adjustments and long-run equilibrium relationships. Unit root tests confirm mixed orders of integration, while the bounds test establishes a stable cointegrating relationship among the variables. Empirical results show that debt servicing exerts a robust negative and statistically significant effect on economic growth in both the short and long run, strongly supporting the debt overhang hypothesis. In contrast, external debt stock is negative but statistically insignificant, indicating that the scale of borrowing alone does not guarantee growth. Gross domestic investment significantly enhances long-run growth, consistent with endogenous growth theory, although its short-run effects remain weak. Institutional quality and its interaction with external debt are statistically insignificant, with the long-run coefficient on institutional quality negative, suggesting that governance improvements in isolation may not translate into growth gains due to structural rigidities, measurement limitations, or transitional adjustments. The error correction term is negative and highly significant (−1.1449), indicating rapid adjustment with overshooting, consistent with small-sample ARDL dynamics and Nigeria’s episodic macroeconomic adjustments. Overall, the study contributes by offering a unified dynamic framework that jointly models debt, investment, and institutional quality, demonstrating that the growth impact of external borrowing in Nigeria is conditional rather than automatic, and depends critically on investment efficiency, manageable debt servicing, and complementary structural reforms.