Abstract
This study examined the effect of external debt burden on the growth of Nigeria economy. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1986-2019. Nigeria real gross domestic was proxied for dependent variable while debt servicing; external debt stock, debt overhang, debt sustainability and crowd-out effect of external debt were proxies for independent variables. The study employed multiple regression models to estimate the relationship that exists between external debt burden indicators and Nigeria economic growth. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pairwise causality tests were used to conduct the investigations and analysis. The study findings revealed that 72 percent of the variations in Nigeria gross domestic products can be explained by the changes in external debt burden indicators. The results indicated a negative coefficient with external debt stock and debt overhang while a positive coefficient with debt sustainability, debt servicing and crowd out effect of external debt on Nigeria gross domestic products. From the findings, the study concludes that external debt burdens significantly affect growth of Nigeria economy. We recommend that the fund borrowed should be effectively managed, the federal government should laydown guidelines in terms of defining the purpose, duration, moratorium requirements and commitments, negotiation among others including conditions for external debt loans. Government should initiate and develop policies that will address the fundamental causes of external debt.
Highlights
Nigerian like other countries faced financial challenges in her economic operations which resulted in borrowing the deficit proportions outside the countries financial boundary
The findings show a significant relationship between external debt and economic growth in Nigeria in a long run, while external debt servicing had both long run and short run negative effect on Nigeria economic growth
The negative effect of the variable contradict the findings of Zaman and Arslan (2014) that gross capital formation and external debt stock have significant positive effect on Pakistan GDP while gross domestic savings does not have significant impact on GDP of Pakistan, Uzun, Karakoy, Kabadayi and Emsen (2012) that external debt has significant positive effect on growth rate in long run and openness has statistically significant positive effect on economic growth of Transitory countries but confirm the finding of Uma,Eboh and Obidike (2013) that total domestic and total external debts are inversely related to real gross domestic product
Summary
Nigerian like other countries faced financial challenges in her economic operations which resulted in borrowing the deficit proportions outside the countries financial boundary. This is term external borrowing and external debt which is a component of public receipt. The Nigerian government has embarked on borrowing externally for the main purpose of financing increased proportion of economic activities for economic growth. It has been argued by Aminu, Ahmadu and Salihu (2013) that in Nigeria, external borrowing is often considered the best way out of embarrassing economic situations
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