External Debt and Economic Growth in Nigeria

International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue IV, April 2020 | ISSN 2454–6186

External Debt and Economic Growth in Nigeria

GEORGE-ANOKWURU, Chioma Chidinma¹, INIMINO, Edet Etim^2
1Department of Economics, Faculty of Social Sciences, University of Port Harcourt, Nigeria
²Department of Economics, Faculty of Social Sciences, University of Uyo, Nigeria

Abstract – External debt may help or hurt the country depending on how it is used. Thus, this paper focused on the impact of external debt on economic growth in Nigeria from 1980 to 2017. Secondary data on real gross domestic product, external debt, external debt service and exchange rate were sourced from CBN statistical bulletin. The Augmented Dickey-Fuller unit root test and Autoregressive Distributed Lag techniques were used as the main analytical tools. The result of the unit root test revealed that the variables were stationary at order zero and one, which satisfied the requirement to employ the ARDL Bounds testing approach. The ARDL Bounds test revealed the existence of long run relationship among the variables. Furthermore, the result revealed that external debt and external debt service have negative and significant relationship with economic growth in Nigeria both in the long run and short run. However, exchange rate has positive and significant relationship with economic growth in Nigeria during the period of study both in the long run and short run. In conclusion, debt is an important development resource but its misuse can be disastrous as had been the Nigerian experience before it got out of the debt trap in 2005. Therefore, government should ensure that the terms of borrowing and the projects for which the borrowed funds are put should be those that benefit the economy and the people. Government should also ensure that debt proceeds are efficiently managed so that Nigeria can avoid a repeat of the ugly history of debt overhang.

Key Words: Debt, External, Economic Growth, ARDL and Overhang

I. INTRODUCTION

One macro-economic problem facing most nations including Nigeria is the achievement of sustainable economic growth. The internal generated revenue and other public finance sources in Nigeria are not adequate to sustain the growth and development of the economy (Gbosi, 2015). Thus, external borrowing (external debt) enables the government to obtain additional resources to finance growth and developmental programmes in order to improve the standard of living of her citizenry. According to Tom-Ekine (2011), the provision of socio-economic necessities of the people such as education, health, etc. may necessitate external borrowing by the government.

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