Burden of Government Debt on Economic Development and Debt Overhang Proposition: Analysis of Empirical Evidences

Abstract

The study examined empirical works on burden of government debt on economic development and debt overhang proposition: analyses of empirical evidences. It was discovered that many studies predominantly found out significant negative relationship (Ajayi & Edewusi, 2020; Matandare &Tito, 2018; Ehikioya et al., 2020; Rafindadi & Musa, 2019; Amaefule, 2018; Ay'unku & Markjackson , 2020; Yusuf & Said, 2018; Elom-Obed, 2017; Pegkas, 2018; Moussa & Shawawreh, 2017; Obisesan et al., 2019; Marafa, 2017; Idris &Ahmad, 2017; Charles & Abimbola, 2018; Akhanolu, 2018) between government debt burden and economic development while very scanty and few studies revealed a positive significant relationship (Lucky & Godday, 2017; Eke & Akujuobi, 2021;Akhanolu, 2018; Iacobo & Ialile, 2017) and non-significant relationship (Ofurum & Fubara, 2022); Mensah, 2018; Ay'unku & Markjackson, 2020) between the public debt and economic development. Several of the empirical study are not premised on debt overhang theory that goes to a great extent to explain the consequences of external debt on countries exceeding certain threshold of external debt stock with attendant consequences associated with external debt as discouraging private investors due to high tax rates in order to raise fund to compensate for the debt (Cohen, 1993). The study discovered other factors namely government expenditure, in?ation rate, interest rate, and exchange rate that have effect on economic development. The empirical studies examined recommended as follows: that borrowed funds, particularly foreign debt, should be reduced. That corruption, especially on borrowed monies, be avoided at all costs and that the government should limit foreign borrowing since it has a detrimental in?uence on the economy. That public debt not tied to investment does not contribute to economic growth of the studied country; that the government should increase efforts to increase domestic revenue sources to ?nance its growth