External Debt, Labour Force and Industrial Output in Nigeria

Abstract

This study investigated the effect of labour force and external debt on industrial output in Nigeria using annual time series data from 1986 to 2023. The study specifically investigated the short and long run relationships among industrial output, external debt, labour force, and other control variables. The Autoregressive Distributed Lag (ARDL) model and Granger causality technique were employed to estimate the dynamic relationships among the variables. The results revealed that external debt exerts a negative and significant long-run effect on industrial output, indicating that rising debt accumulation and servicing obligations constrain industrial productivity in Nigeria. Similarly, labour force dynamics negatively affected industrial output in the long run, suggesting that labour force expansion has not translated into improved industrial productivity due to structural inefficiencies, unemployment, inadequate technical skills, and weak industrial absorptive capacity. Conversely, trade openness positively and significantly influenced industrial output in both the short run and long run, while exchange rate had a positive long-run effect but a negative short-run effect. Foreign direct investment exerted an insignificant long-run effect and a significantly negative short-run effect on industrial output. The study concludes that external borrowing and labour force expansion alone cannot stimulate sustainable industrial growth without productive debt utilization, improved labour productivity, and structural reforms. The study therefore recommends productive debt allocation, labour market reforms, and industrial policies aimed at enhancing industrial productivity and sustainable growth in Nigeria.