The Effect of Foreign Debt on the Economic Growth of Nigeria
Abstract
This study examines the effect of foreign debt on the economic growth of Nigeria. Data for the study are collected from the World Bank and Central Bank of Nigeria Statistical Bulletin. The variables on which data are sourced include nominal gross domestic product, foreign debt stock, foreign debt servicing, inflation rate, and exchange rate. Nominal gross domestic product is the dependent variable while foreign debt stock and foreign debt servicing are the major explanatory variables. Inflation and exchange rates are used as the control variables. The scope of the study covers the period from 1997 to 2017 and data are analyzed using the ordinary least squares regression technique. The regression results indicate that foreign debt exerts a significant negative influence on economic growth while foreign debt servicing has a strong and significant positive impact on economic growth. The other factors are insignificant in explaining economic growth under this scenario. Thus, the study recommends a more purposeful borrowing pattern and revenue generation through profitable capital investments as the remedy for a foreign debt crisis in the country. The study also suggests a revival of abandoned industries as a more effective way of reducing foreign borrowing, creating employment opportunities and alleviating poverty in the country.References
Adedoyin, L.I., Babalola, B.M., Otekinri, A.O., & Adeoti, J.O. (2016). External debt and economic growth: Evidence from Nigeria. Acta Universitatis Danubius Economica, 12(6), 179-194.
Afolabi, B., Laoye, A., Kolade, A.R., & Enaholo, J. (2017). The nexus between external debt and economic growth in Nigeria. British Journal of Economics, Finance and Management Sciences, 14(1), 1-17.
Ajayi, L.B., & Oke, M.O. (2012). Effect of external debt on economic growth and development of Nigeria. International Journal of Business and Social Science, 3(12), 297-304.
Akram, N. (2016). Public debt and pro-poor economic growth: Evidence from South
Asian Countries. Economic Research Ekonomska Istrazivanja, 29(1), 746-757. doi: 10.1080/1331677X.2016.1197550.
AL-Tamimi, K.A.M., & Jaradat, M.S. (2019). Impact of external debt on economic growth in Jordan for the period (2010-2017). International Journal of Economics and Finance, 11(4), 114-118. doi: 10.5539/ijef.v11n4p114.
Bakare, A.S. (2011). The macroeconomic impact of foreign aid in Sub-Saharan Africa: The case of Nigeria. Business and Management Review, 1(5), 24-32.
Business Dictionary (2019a). Foreign Debt. Retrieved on June 9, 2019 from http://www.businessdictionary.com/definition/foreign-debt.html.
Business Dictionary (2019b). Debt Service. Retrieved on June 9, 2019 from http://www.businessdictionary.com/definition/debt-service.html.
Cambridge Dictionary (2019). Foreign Debt. Retrieved on June 9, 2019 from https://dictionary.cambridge.org/.
CBN Statistical Bulletin (2018). Annual Statistical Bulletin. Retrieved on March 1, 2019 from https://www.cbn.gov.ng/documents/Statbulletin.asp.
Elwasila, S.E.M. (2018). Effect of external debt on economic growth of Sudan: Empirical analysis (1969-2015). Journal of Economic Cooperation and Development, 39(1), 39-62.
Focus Economics (2019). External debt (% of GDP). Retrieved on June 9, 2019 from https://www.focus-economics.com/economic-indicator/external-debt.
Gujarati, D.N., & Porter, D.C. (2009). Basic Econometrics (5th Ed.). Boston: McGraw-Hill.
IMF (2003). External debt statistics: Guide for compilers and users. Retrieved on June 5, 2019 from http://www.imf.org/external/pubs/ft/eds/Eng/Guide/index.htm.
Ijirshar, V.U., Joseph, F., & Godoo, M. (2016). The relationship between external debts and Economic growth in Nigeria. International Journal of Economics & Management Sciences, 6(1), 1-5. doi:10.4172/2162-6359.1000390.
Jegede, M. (2013). Ajaokuta Steel: An abandoned national treasure. Retrieved on June 11, 2019 from https://www.thenigerianvoice.com/sports/105241/ajaokuta-steel-an-abandoned-national-treasure.html.
Kasidi, F., & Said, M. (2013). Impact of external debt on economic growth: A case study of Tanzania. Advances in Management & Applied Economics, 3(4), 59-82.
Kothari, C. (2004). Research methodology: methods & techniques (2nd Ed.). New Delhi, India: Newage International Publishers.
Krugman, P. (1988). Financing vs forgiving a debt overhang. Journal of Development Economics, 29(3), 253-268.
Matuka, A., & Asafo, S.S. (2018). External debt and economic growth in Ghana: A co-integration and a vector error correction analysis. Retrieved on June 5, 2019 from https://mpra.ub.uni_muenchen.de/904631.
Mbah, S.A., Agu, O.C., & Umunna, G. (2016). Impact of external debt on economic growth in Nigeria: An ARDL bound testing approach. Journal of Economics and Sustainable Development, 7(10), 16-26.
Merriam-Webster (2019). Definition of debt service. Retrieved on June 5, 2019 from https://www.merriam-webster.com/dictionary/debt%20service.
Monogbe, T.G. (2016). Intergenerational effect of external debt on performance of the Nigeria Economy. NG-Journal of Social Development, 5(2), 51-65.
Mukui, G.K. (2013). Effect of external public debt on economic growth in Kenya. Retrieved on June 5, 2019 from http://erepository.uonbi.ac.ke/bitstream/handle/11295/60614/Mukui_Effect%20of%20external%20public%20debt%20on%20economic%20growth%20in%20Kenya.pdf?sequence=3&isAllowed=y.
Mutiu, Y. (2016). 10 major untapped resources in Nigeria. Retrieved on June 11, 2019 from https://economicconfidential.com/2016/04/10-major-untapped-resources-nigeria/.
Myers, S.C. (1977). Determinants of corporate borrowing. Journal of Financing Economics, 5(2), 147-175.
Ndekwe, E.C. (2008). Government borrowing, monetary supply and monetary policy in Nigeria: Government’s monetary impact in mixed economy. Ibadan, Nigeria: Nigeria Institute of Social and Economic Research.
Ndubuisi, P. (2017). Analysis of the impact of external debt on economic growth in an Emerging Economy: Evidence from Nigeria. African Research Review, 11(4), 156-173. doi: 10.4314/afrrev.v11i4.13.
Olagide, F. (2019). Assessing efforts to revive Nigeria’s textile industry. Retrieved on June 5, 2019 from https://leadership.ng/2019/01/08/assessing-efforts-to-revive-nigerias-textile-industry/.
Onakoya, A.B., & Ogunade, A.O. (2017). External debt and Nigerian economic growth connection: Evidence from autoregressive distributed lag approach. Journal of Economics and Development Studies, 5(1), 66-78. doi: 10.15640/jeds.v5n1a7.
Rieffel, L. (2005). Nigeria’s Paris Club debt problem. Retrieved on June 3, 2019 from https://www.brookings.edu/research/nigerias-paris-club-debt-problem/.
Rifaqat, A., & Usman, M. (2012). External debt accumulation and its impact on economic growth In Pakistan. The Pakistan Development Review, 51(4), 79-96.
Saxena, S.P., & Shanker, I. (2015). External debt and economic growth in India. Social Science Asia, 4(1), 15-25.
Shkolnyk, I., & Koilo, V. (2018). The relationship between external debt and economic growth: Empirical evidence from Ukraine and other emerging economies. Investment Management and Financial Innovations, 15(1), 387-400. doi: 10.21511/imf1.15(1).2018.32.
Siddique, A., Selvanathan, E.A., & Selvanathan, S. (2015). The impact of external debt on economic growth: Empirical evidence from highly indebted poor countries. Economics Discussion/Working Papers 15-10. University of Western Australia.
Soludo, C.C. (2003). Debt poverty and inequality: Towards an Exit Strategy for Nigeria and Africa. In Okonjo, N., Soludo, C.C., & Muhtar, M. (Eds.), The debt trap in Nigeria: Towards a sustainable debt strategy (pp.23-74). Trenton: Africa World.
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.
Udeh, M.C. (2013). The impact of external debt on the Nigerian economy. Enugu, Nigeria: Caritas University.
Udeh, S.N., Ugwu, J.I., & Onwuka, I.O. (2016). External debt and economic growth: The Nigeria Experience. European Journal of Accounting, Auditing and Financial Research, 4(2), 33-48.
Downloads
Published
How to Cite
Issue
Section
License
Under the Creative Commons Attribution-NonCommercial-NoDerivs license, the users are free to share (copy, distribute and transmit the contribution) with the condition to attribute the contribution in the manner specified by the author or licensor. They may not alter, transform, or build upon this work.
