JEFMS Journal

ABSTRACT:

External borrowing is a significant source of government revenue, and the increase in the levels of foreign borrowing is taken as evidence of progress toward meeting economic and infrastructure goals. Despite the massive incidence of foreign borrowings, developing nations continue to lag behind established economies in terms of quality, quantity, and accessibility to the benefits of infrastructural development. Therefore, this study analyses the effect of external borrowing on government expenditure on road construction in Nigeria. The study is anchored on the debt crowding theory. In analyzing the effect of external borrowing on macroeconomic performance in Nigeria, an Autoregressive Distributed Lag (ARDL) model framework was employed. The data for the study is a time series trend from the 1991-2022 periods. The ARDL result in the long run, external borrowing and interest rate exhibit significantly negative influence on government expenditure on road construction, as a percentage increase in both variables is seen to reduce expenditure on road construction by 0.26 and 12.3 percent respectively. Conversely, exchange rate and inflation have a significantly positive relationship with expenditure on road construction. A percentage increase in the exchange rate will increase expenditure on road construction by 1.66 percent. Similarly, a percentage increase in inflation will increase expenditure on road construction by 1.3 percent. The study indicates that the Federal Government of Nigeria must be methodical in its funding sources to provide infrastructure development facilities. While external borrowing is necessary, looking inward to create more revenue ways should be considered because it is less expensive. It was stated that foreign borrowing had a negative yet significant impact on Nigerian road construction.

KEYWORDS:

External debt, Eurobond, Government expenditure, Multilateral debt, Road construction

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