External Debt Accumulation and Poverty Rate in Nigeria: An Error Correction Approach

Abstract

Owing to the increasing debt-to-GDP ratio and the attendant high multidimensional poverty in Nigeria, this study set out to examine the role of external debt on poverty alleviation in Nigeria. The model constructed for the study proxies final consumption expenditure as the endogenous variable measuring poverty rate as a function of external debt and external debt service. Annual time series data was gathered from the World Bank’s World Development Indicator (WDI) from 1981 to 2021. The econometric techniques of the Autoregressive Distributed Lag (ARDL) model, Augmented Dickey-Fuller (ADF) Unit Root test, Bound Cointegration test, and Error Correction Model (ECM) were engaged in the empirical analysis. The co-integration test shows that a long-run equilibrium relationship exists among the variables. The findings from the long-run result show that external debt has a significant positive impact on the poverty rate in Nigeria. The study gives some policy recommendations based on the findings