EXTERNAL DEBT AND ECONOMIC GROWTH IN NIGERIA: 1987-2010

Posted on by shekknett

By

Yekeen O. Abdul-Maliq

Banking and Finance Department

University of Abuja

E-mail: [email protected]

and

Ismaila Daddy Abubakar

Economics Department

University of Abuja

E-mail: [email protected]

ABSTRACT

External debt is one of the channels by which countries finance their deficits and carry out economic projects that are capable of increasing peoples’ standard of living, promote sustainable economic development and an important resource needed to support sustainable economic growth Countries however run into debt crisis in the presence of growing level of external debt relative to GDP and export. Several studies have carried out on the relationship between external debt and economic growth in Nigeria with mix result. This study examines the actual rate of affair. Econometric method was employed in the analysis of data Normality test, unit root test, and co-integration test were conducted all in a bit to ensure that the resultant model estimates produce reliable regression results Findings from the study reveals that debt is not only associated with economic growth, but it also impacts positively on the growth effort of the economy most especially after debt forgiveness. However, the study recommends the need for government to imbibe the culture of channeling external debt into productive resources that are capable of generating significantly high return which can be used to offset the debt without necessarily paying debt from other sources that could otherwise be used to finance development projects.

Keywords: external debt and external growth, GDP

INTRODUCTION

Due to the scarcity of resources and the law of comparative advantage, countries depend on each other to foster economic growth and achieve sustainable economic development (Adepoju, Salad & Obayelu, 2007). The necessity for governments to borrow in order to finance a deficit budget led to the development of external debt in Nigeria (Osinubi & Olaleru, 2006, Obadan, 2004b). In addition, Ovat and Uket (2003) note that Nigeria, after its independence, began to contract debt to fill the savings and foreign exchange gap in order to achieve rapid economic growth that enhances the living standard of its citizens.