Global Journal of Human Social Science, E: Economics, Volume 22 Issue 7

EXR to EDT EDT to EXR 1.51 0.05 0.24 0.95 No causality INT to FSD FSD to INT 2.17 9.94 0.13 0.00*** Unidirectional causal flow from FSD to INT Note: *, ** and *** represent 10%, 5% and 1% significance levels respectively Source: Author’s Computation (2022) To establish the existence of long-run relationship in the series, ARDL Bounds test was used. If the F-statistic is greater than the critical value there is long-run relationship among the variables. From Table 4.5, the F-statistic is greater than the critical values even at the 1% significance levelhence, the existence of long- run relationship. Table 4.5: ARDL Bound Test Test Statistic Value k F-statistic 5.29 6 Critical Value Bounds Significance 1(0) Bound I(1) Bound 10% 2.45 3.52 5% 2.86 4.01 2.5% 3.25 4.49 1% 3.74 5.06 Source: Author’s Computation (2022) Table 4.6 presents the result of the ARDL test. The Durbin-Watson statistic 1.932 is greater than the R 2 0.889 and less than 2. It shows that there is no false regression result and absence of serial correlation respectively. The probability value of the F-statistic is less than (<) 0.01. This means that all the predictor variables EDT(-1) FSD, CAD, INT, ISG, and EXR are jointly significant in explaining variations in external debt in Nigeria. The R-squared value is 0.889. This implies that approximately 89% of the changes in the dependent variable is explained or accounted for by EDT(-1) FSD, CAD, INT, ISG, and EXR. Table 4.6 shows that external debt in the previous year positively and significantly impacted external debt in the current year at the 1% significance level. This implies that 1% increase in external debt in the previous year will lead to an approximately 0.76% rise in external debt in the current year. Exchange rate negatively and significantly impacted external debt in Nigeria at the 10% significance level. This implies that 1% increase in the naira to dollar rate will lead to an approximately 0.03% reduction in external debt. This tally with the correlation result and also testifies to the fact that less importation and more exportation will reduce the trade gap arising from exchange rate exposure and consequently reduce external debt. However, the causality test result shows that exchange rate does not directly impact external debt. Current account deficit/balance negatively but insignificantly impacted external debt. 1% increase in CAD will lead to an approximately 0.16% decrease in external debt. The data on CAD obtained from the CBN’s statistical bulletin shows that the years of surplus exceeds the years of deficit and this is due to huge gains from oil trade. This result is best interpreted in termsof current account surplus and external debt. By implication, efforts to close deficits or increase surpluses in current account will reduce external debt in Nigeria. FSD negatively and significantly impacted external debt at the 5% significance level. The result shows that 1% increase in FSD will lead to an approximately 3.04% decrease in external debt. The result further shows that FSD is the key predictor variable. This result aligns with the correlation matrix and the granger causality. Moreso, the standard deviation from the descriptive statistics which is 1.62 and is relatively not far from 1, shows that FSD is fairly stable. The negative relationship between external debt and fiscal deficit suggests that if excess expenditure is productively used, external debt burden will be significantly reduced. In addition, since external debt variable entered the model with positive values, in absolute terms, it can beinterpreted that 1% reduction in FSD will reduce external debt in Nigeria by 3.04%. There was no significant impact between external debt and INT but the coefficient was positive. This showsthat real interest rate is positively associated with external debt. This implies that as external debt increases, interest rate increases. This will further expand the investment-saving gap because literature supports an inverse relationship between interest rate and investment. Also, no significant impact existed between external debt and ISG, whose coefficient was negative. This shows that an indirect relationship exists between external debt and investment. Therefore, external debt will impact investment through the influence of interest rate. © 2022 Global Journals Volume XXII Issue VII Version I 41 ( ) Global Journal of Human Social Science - Year 2022 E Implication of Fiscal Deficit Financing on External Debt Sustainability in Nigeria