Relative Potency of Internal and External Sources of Financing Nigerian Economic Growth: 1983-2012

Abstract

The study is aimed at determining the relative potency of internal and external sources of financing economic growth in Nigeria using time series data from 1983 to 2012. Ordinary least square regression method, unit root test, Johansen cointegration test and error correction model were used for the purpose of analyses. Gross national saving, internal debt, grants and foreign investment are stationary at level, gross domestic investment at first difference and gross domestic product at second difference. From the over parameterized ECM, none of the internal and external financing options is significant in explaining economic growth. In the group of internal options, gross national saving, gross domestic investment and internal debt contribute positively to growth in the short and long run, the only exception being gross national saving in the short run. In the group of external options however, only grant contribute positively to growth in the long and short run. Foreign direct investment appears like a wolf in sheep's clothing given its long run negative impact. Finally, growth is a decreasing and an increasing function of external debt in the short and long run respectively. It is noteworthy that a very high constant coefficient implies that there are many factors that actually determine Nigerian gross domestic product outside the model. While the variables of interest are theoretically expected to play significant roles, they fail empirically. A comparison of the two modes shows that internal factors prove to be more reliable in accelerating Nigerian economic growth.