Article abstract

Journal of Economics and International Business Management

Research Article | Published August 2018 | Volume 6, Issue 2, pp. 30-39.

doi: https://doi.org/10.33495/jeibm_v6i2.18.110

 

The impact of external debt on the Nigerian economy

 


 

 

Onyeiwu Charles*

Oladipopo Abimbola

 

Email Author

 

Department of Banking and Finance, Faculty of Business Administration, University of Lagos, Nigeria.


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Citation: Charles O, Abimbola O (2018). The impact of external debt on the Nigerian economy. J. Econ. Int. Bus. Manage. 6(2): 30-39.

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 Abstract 


This study examined the effect of external debt on economic growth in Nigeria. Gross domestic product was used as a proxy for economic growth which is the dependent variable while external debt stock, external debt service payments, domestic debt, external reserve and exchange rate were the independent variables. External debt stock and external debt service payments were used to capture the external debt burden in Nigeria. The paper adopted the ARDL bound testing to co-integration as an appropriate technique. The result shows that domestic debt lag 1, D(LDDS (-1)), has a negative but significant effect on economic growth. The result of the conditional error correction regression suggests that external debts stock lag 1, that is, LEDS (-1) has a significant direct relationship with economic growth at 1 percent significance level. It could also be observed that external debt service payment and exchange rate indicate a significant negative effect on economic growth while external reserve reveals a significant positive impact on economic growth in the long run. The consequent policy recommendation is that external debts should be contracted solely for economic reasons and not for social or political reasons. When government is increasing her spending based on external debt, it has to be meticulous about the sector of the economy where the loan is channeled. Increase in government spending centered on agriculture, manufacturing, entrepreneurship, human capital development and technological innovation will definitely stimulate economic growth and enhance the pace of development. While increase in government spending on the non-productive sector (current consumption) of the economy from external loan will spontaneously crowd out private saving and investment and may depress the economy.

Keywords  External debt   dual gap theory   gross domestic product   ARD  

 

 

Copyright © 2018 Author(s) retain the copyright of this article.

This article is published under the terms of the Creative Commons Attribution License 4.0

 

 

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