Rethinking Development Finance: Do External Debt and Governance Promote Sustainable Human Development in Nigeria?

Abstract

Existing literature on development outcomes often examines health, education, or environmental quality in isolation, with few studies offering a holistic assessment of sustainable human development. Moreover, the moderating role of governance quality in the relationship between external debt and sustainable human development remains underexplored. Additionally, most prior research relies on linear modelling approaches, which may not adequately capture the dynamic and asymmetric nature of this relationship. This study addresses these gaps by investigating the impact of external debt on sustainable human development in Nigeria, while incorporating governance quality as a moderating variable. Using quarterly data from 1996 to 2022 and applying the Nonlinear Autoregressive Distributed Lag (NARDL) model, the results reveal that both positive and negative shocks to external debt have a significant positive effect on sustainable human development, indicating that external borrowing, when effectively managed, can support long-term development goals. Furthermore, governance quality independently improves sustainable human development, and its interaction with external debt amplifies these gains. These findings highlight the critical role of strong institutional frameworks in enhancing the developmental returns of external debt. This evidence can inform policy decisions on debt management and institutional reform to maximize development outcomes.