Inflation, External Debt and Economic Growth in Nigeria: Empirical Appraisal using ARDL

Eternal debt when incurred and manage well can increase and sustain economic growth, thus increase the standard of living of citizens in an economy. In the same vein, an economy can not have a measure of zero inflationary digit, this implies a significance level of inflation is needed for the stabilization of an economy. Despite the above, Nigeria is experiencing a high level of inflationary level and huge external debt. Thus, the study examines the interplay among inflation, external debt and economic growth in Nigeria using the Auto-Redistributive lag methodology. The study reveals, both inflation and external debt has a reverse effect on economic growth in Nigeria. While an increase in the exchange rate leads to a substantial decrease of roughly 13.62 units in GDP. External debt’s direct impact on GDP is insignificant, but lagged external debt variables exhibit negative impacts. Additionally, trade openness shows a minor adverse effect on GDP, with a one-unit increase resulting in a negligible decrease of about 0.05 units. The study also reveals only two (2) percent convergence annually to long run equilibrium from short run disturbance. The study concludes that High inflation, unfavorable exchange rates, and excessive external debt can hinder GDP growth. Thus, the study recommends that, managing exchange rate fluctuations is crucial. Policies should aim to stabilize the exchange rate to promote trade and investment. While the current external debt level does not significantly affect GDP, the lagged external debt variables do. Hence prudent debt management is essential to prevent long-term negative effects on economic growth. Trade openness has a minor impact on GDP. Improving infrastructure and reducing trade barriers are key to harness the benefits of globalization.