The Impact of Institutional Quality on External Debt Management in Nigeria

Abstract

This study investigates the impact of institutional quality on external debt management in Nigeria, focusing on the period from 1980 to 2022. It employed data from the World Development Indicator and the CBN Statistical Bulletin, the research employed descriptive statistics, trend analysis, and advanced econometric techniques, including the Augmented Diceey-Fuller (ADF) unit root test and the Auto Regressive Distributed Lag (ARDL) model, to explore the relationships among eey variables. The dependent variable, Debt to Gross Domestic Product (GDP) ratio (DGDP), is analyzed against several independent variables: government transparency index (GTI), government effectiveness index (GEI), corruption perception index (CPI), regulatory quality index (RQI), inflation rate (INF), and the logarithm of government expenditure (LINGEXP). The findings reveal that higher government transparency and reduced corruption are associated with lower debt-to-GDP ratios, while government effectiveness and regulatory quality are positively correlated with higher debt levels. Inflation and government expenditure also significantly impact debt dynamics, underscoring the need for effective inflation control and prudent fiscal management. The ARDL bounds test confirms a long-term relationship between institutional quality and external debt management, highlighting the importance of stable and transparent institutions for sustainable debt practices. The study concludes that enhancing institutional quality through improved transparency, accountability, and regulatory framewores, along with effective inflation control and fiscal management, is crucial for Nigeria's economic stability and sustainable debt management.