International Journal of Finance and Banking Research

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External Debt and Economic Growth in Nigeria: Long Run Analysis

Received: 29 September 2019    Accepted: 28 October 2019    Published: 25 December 2019
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Abstract

The role of external debt in economic growth of developing countries has been questioned since there has been a high incidence of default, low economic growth and high levels of poverty, all of which are associated with high stocks of external debt. Also, the uncertainties about country external debt sustainability position as well as whether countries are already trapped in the debt-overhang situation have underlined point of debate among scholars. This study investigates the dynamic relationship between external debt and economic growth of Nigeria for period of 1985 to 2017 using Johansen approach to cointegration, vector error correction model (VECM) and granger causality test. Data for the study was collected from the CBN statistical bulletin. The findings revealed that debt service payment has negative and insignificant impact on Nigeria’s economic growth while external debt stock has negative and significant effect on economic growth. The causality test indicates no-directional causality between external debt and GDP. From the findings, the study recommends that policy-makers should reformulate the external debt management strategy to minimize sovereign risk through diversification of the external borrowing. This could potentially be achieved by reducing the dependency on one specific debt instrument or currency. Hence, the strategy will be effective if it is carried out in parallel with a comprehensive surveillance and debt-monitoring system.

DOI 10.11648/j.ijfbr.20190506.17
Published in International Journal of Finance and Banking Research (Volume 5, Issue 6, December 2019)
Page(s) 180-187
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Conomic Growth, External Debt, Dependency Theory, Debt Servicing, Exchange Rate

References
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[4] Emmanuel, O. O. (2012). An empirical analysis of the impact of public debt on economic growth; Evidence from Nigeria 1975-2005. Canadian Social Science, 8 (4), pp. 154-161.
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[8] Pattillo, C. A., Poirson, H., & Ricci, L. A. (2002). External debt and growth (No. 2002-2069). International Monetary Fund.
[9] Claessens, S., Detragiache, E., Kanbur, R., & Wickham, P. (1997). HIPCs' debt review of the issues. Journal of African Economies, 6 (2), 231-254.
[10] Ibi, E. E. and Aganyi, A. (2015), Impacts of external debt on economic growth in Nigeria: a VAR approach. Journal of Business Management and Administration, 3 (1), 1-5.
[11] Karagol, E. (2002). External debt and economic growth relationship using the simultaneous equations. Universitäts-und Landesbibliothek Sachsen-Anhalt.
[12] Clements, M., Nguyen, T. Q., B. J., & Bhattacharya, M. R. (2003). External debt, public investment, and growth in low-income countries (No. 3-249). International Monetary Fund.
[13] Malik, S., Hayat, M. K., & Hayat, M. U. (2010). External debt and economic growth: Empirical evidence from Pakistan. International Research Journal of Finance and Economics, 44 (44), 1450-2887.
[14] Audu, I. (2004). The impact of external debt on economic growth and public investment: The case of Nigeria. African Institute for Economic Development and Planning (IDEP).
[15] Ayadi, F. S., & Ayadi, F. O. (2008). The impact of external debt on economic growth: A comparative study of Nigeria and South Africa. Journal of Sustainable Development in Africa, 10 (3), 234-264.
[16] Adesola, W. A. (2009). Debt servicing and economic growth in Nigeria: An empirical investigation. Global Journal of social sciences, 8 (2).
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[18] Sulaiman, L. A., & Azeez, B. A. (2012). Effect of external debt on economic growth of Nigeria. Journal of Economics and Sustainable Development, 3 (8), 71-79.
[19] Ezeabasili, V. N., Isu, H. O., Mojekwu, J. N., (2011). Nigeria's external debt and economic growth: An error correction approach. International Journal of Business and Management. 6 (5), May.
[20] Nwanne, T. F. I. and Eze, O. R. (2015). Assessing the effect of external debt servicing and receipt on exchange rate in Nigeria. International Journal of Economics and Finance, 7 (9), pp. 278-286.
[21] Hassan, O. M., Sule, A., & Abu, J. (2015). Implications of external debt on the Nigerian economy: Analysis of the dual gap theory. Journal of economics and sustainable development, 6 (13), 238-248.
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Author Information
  • Department of Banking and Finance, Abia State University, Uturu, Nigeria

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    Paul Ndubuisi. (2019). External Debt and Economic Growth in Nigeria: Long Run Analysis. International Journal of Finance and Banking Research, 5(6), 180-187. https://doi.org/10.11648/j.ijfbr.20190506.17

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    Paul Ndubuisi. External Debt and Economic Growth in Nigeria: Long Run Analysis. Int. J. Finance Bank. Res. 2019, 5(6), 180-187. doi: 10.11648/j.ijfbr.20190506.17

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    Paul Ndubuisi. External Debt and Economic Growth in Nigeria: Long Run Analysis. Int J Finance Bank Res. 2019;5(6):180-187. doi: 10.11648/j.ijfbr.20190506.17

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  • @article{10.11648/j.ijfbr.20190506.17,
      author = {Paul Ndubuisi},
      title = {External Debt and Economic Growth in Nigeria: Long Run Analysis},
      journal = {International Journal of Finance and Banking Research},
      volume = {5},
      number = {6},
      pages = {180-187},
      doi = {10.11648/j.ijfbr.20190506.17},
      url = {https://doi.org/10.11648/j.ijfbr.20190506.17},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.ijfbr.20190506.17},
      abstract = {The role of external debt in economic growth of developing countries has been questioned since there has been a high incidence of default, low economic growth and high levels of poverty, all of which are associated with high stocks of external debt. Also, the uncertainties about country external debt sustainability position as well as whether countries are already trapped in the debt-overhang situation have underlined point of debate among scholars. This study investigates the dynamic relationship between external debt and economic growth of Nigeria for period of 1985 to 2017 using Johansen approach to cointegration, vector error correction model (VECM) and granger causality test. Data for the study was collected from the CBN statistical bulletin. The findings revealed that debt service payment has negative and insignificant impact on Nigeria’s economic growth while external debt stock has negative and significant effect on economic growth. The causality test indicates no-directional causality between external debt and GDP. From the findings, the study recommends that policy-makers should reformulate the external debt management strategy to minimize sovereign risk through diversification of the external borrowing. This could potentially be achieved by reducing the dependency on one specific debt instrument or currency. Hence, the strategy will be effective if it is carried out in parallel with a comprehensive surveillance and debt-monitoring system.},
     year = {2019}
    }
    

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  • TY  - JOUR
    T1  - External Debt and Economic Growth in Nigeria: Long Run Analysis
    AU  - Paul Ndubuisi
    Y1  - 2019/12/25
    PY  - 2019
    N1  - https://doi.org/10.11648/j.ijfbr.20190506.17
    DO  - 10.11648/j.ijfbr.20190506.17
    T2  - International Journal of Finance and Banking Research
    JF  - International Journal of Finance and Banking Research
    JO  - International Journal of Finance and Banking Research
    SP  - 180
    EP  - 187
    PB  - Science Publishing Group
    SN  - 2472-2278
    UR  - https://doi.org/10.11648/j.ijfbr.20190506.17
    AB  - The role of external debt in economic growth of developing countries has been questioned since there has been a high incidence of default, low economic growth and high levels of poverty, all of which are associated with high stocks of external debt. Also, the uncertainties about country external debt sustainability position as well as whether countries are already trapped in the debt-overhang situation have underlined point of debate among scholars. This study investigates the dynamic relationship between external debt and economic growth of Nigeria for period of 1985 to 2017 using Johansen approach to cointegration, vector error correction model (VECM) and granger causality test. Data for the study was collected from the CBN statistical bulletin. The findings revealed that debt service payment has negative and insignificant impact on Nigeria’s economic growth while external debt stock has negative and significant effect on economic growth. The causality test indicates no-directional causality between external debt and GDP. From the findings, the study recommends that policy-makers should reformulate the external debt management strategy to minimize sovereign risk through diversification of the external borrowing. This could potentially be achieved by reducing the dependency on one specific debt instrument or currency. Hence, the strategy will be effective if it is carried out in parallel with a comprehensive surveillance and debt-monitoring system.
    VL  - 5
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