External Debt, Globalisation and Financial Sector Development in Nigeria’s Inclusive Economic Transformation: A Bootstrap ARDL Bounds-Testing Analysis

This study examines how external debt, globalisation, renewable energy, financial sector development and carbon emissions relate to inclusive economic transformation in Nigeria over 1990–2023. Unlike existing Nigerian studies, which proxy growth with GDP alone, the study constructs two composite indices by principal component analysis: an Inclusive Economic Transformation Index spanning health, governance, output, employment, government expenditure, energy access, financial access and income distribution, and a Financial Sector Development Index combining credit, banking assets and monetary depth. After establishing the order of integration and testing for structural breaks using the Augmented Dickey-Fuller, Phillips-Perron, Kwiatkowski-Phillips-Schmidt-Shin, Zivot-Andrews and Bai-Perron procedures, the study tests for cointegration using a bootstrap-corrected autoregressive distributed lag bounds procedure, since asymptotic critical values proved unreliable at this sample size. The bounds test does not establish a statistically significant long-run relationship, but the error-correction term is large, correctly signed and highly significant throughout, indicating that roughly three-quarters of any disequilibrium closes within a year, a result robust to the choice of structural-break date. Financial sector development carries the most consistent positive signal, significant under Newey-West standard errors in both the short run and the long run and stable across three alternative structural-break dates, although its long-run estimate no longer excludes zero once a block bootstrap accounts for the severe multicollinearity among the level regressors; external debt, globalisation and carbon emissions remain directionally informative but not precisely identified, and renewable energy carries a persistently negative long-run association that runs counter to a priori expectation. The study concludes that Nigeria's debt, globalisation, energy and financial dynamics form an interlinked, self-correcting system, and recommends that any debt-linked development instrument, including a debt-for-climate swap, be structured around financial deepening and the system's demonstrated capacity for self-correction rather than around precise, currently unidentifiable elasticities for debt, globalisation or renewable energy.

External debt; Globalisation; Financial sector development; Inclusive economic transformation; ARDL bounds test; Bootstrap

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