External Debt and Foreign Private Investment in Nigeria : A Test for Causality

The paper investigates the causal relationship between External Debt and Foreign Private Investment in Nigeria between 1970 and 2003. The source of data for the study is the publication of the Central Bank of Nigeria Statistical Bulletin (volume 14, 2004) issued annually by the Research Department. The variables used in the study were tested for stationarity using the Augmented Dickey Fuller and Philip Perron test. The result shows that the variables are stationary at first differencing. Cointegration test was also performed and the result shows that the variables are not related in the long run using the likelihood ratio as a measure of significance. The result of the cointegration determines the use of vector autoregressive model to test for causality, which resulted in a bi-directional relationship between external debt and foreign private investment in Nigeria