Modeling the Impact of External Debt Stock and Servicing on Export in Nigeria (1981-2010)

Abstract

This study examines the econometric relationship between external debt stock and servicing on exports in Nigeria covering the period 1981-2010. The Ordinary Least Square (OLS) is used to test the explanatory power and level of significance of external debt stock and servicing on exports. The unit root test, co-integration and error correction techniques are introduced to smoothen the spuriousity inherent in time series data as well as to proof the existence of both the short and long-run equilibrium relationship between the variables. The results reveal a 91% explanatory power of debt stock and debt servicing on exports negatively. The ADF test using the Maximum and Trace statistics, shows that only DS is stationary while all others are found to be stationary at first difference at 5% level of significance. The Johansen co-integration test shows that there exists stable long-run equilibrium relationship between the variables. The ECM shows that the coefficient of determination is highly significant at 5% level with the R2 value of 92%. It is recommended among others that the government should offset trade bills using domestic resources instead of external finance.