Impact of Multilateral Debt Stock on Economic Growth in Nigeria: Evidence from a Vector Error Correction Techniques

This study investigates the impact of multilateral debt on economic growth in Nigeria within the theoretical framework of Public Choice Theory, which emphasizes the role of institutional behaviour and fiscal decision-making in economic outcomes. Using quarterly data from 2007Q1 to 2024Q2, the study employs real gross domestic product (RGDP) as a proxy for economic growth, while multilateral debt (MUD), inflation rate (INF), exchange rate (EXH), and debt servicing (DBS) serve as the independent variables. Data were sourced from the Central Bank of Nigeria (CBN), the Debt Management Office (DMO), and the Budget Monitoring Office (BMO). To assess the time-series properties of the variables, the Augmented Dickey-Fuller (ADF) test was conducted, confirming that all variables are integrated in order one, I(1). The Johansen Cointegration Test reveals the existence of long-run relationships among the variables. The Vector Error Correction Techniques (VECM) confirmed the presence of a significant short-run adjustment mechanism. Furthermore, the Wald Short-Run Causality Test and the Toda-Yamamoto Causality Test provide evidence of unidirectional causality from multilateral debt, debt servicing, and exchange rate to real GDP. These results suggest that while multilateral debt can promote economic growth, its effectiveness largely depends on proper fiscal governance, transparency, and productive utilization of borrowed funds. The study recommends prudent debt management policies and structural reforms to optimize the growth-enhancing potential of multilateral borrowing in Nigeria.