The impact of Nigeria's external debt on economic development

Abstract

Purpose -This paper aims to investigate the impact of huge external debt with its servicing requirements on economic growth of the Nigerian economy so as to make meaningful inference on the impact of the debt relief which was granted to the country in 2006. Design/methodology/approach -The neoclassical growth model which incorporates external sector, debt indicators and some macroeconomic variables was employed in this study. The paper investigates the linear and nonlinear effect of debt on growth and investment utilizing the ordinary least squares and the generalized least squares. Findings -Among other things, the negative impact of debt (and its servicing requirements) on growth is confirmed in Nigeria. In addition, external debt contributes positively to growth up to a point after which its contributions become negative reflecting the presence of nonlinearity in effects. Originality/value -Nigeria's external debt is analyzed in a new context utilizing a different but innovative model and econometric techniques. It is of tremendous value to researchers on related topic and an effective policy guide to policymakers in Nigeria and other countries with similar characteristics.

Oil revenues, External debt, and Growth in Nigeria

“…This implies that the external loans obtained were either embezzled or diverted through corrupt deals that did not add value to the nation's investment to generate adequate income for debt repayment, and affects growth negatively. This coincides with the works of Adamu and Rajah (2016), Adegbite et al, (2008) and Tchereni et al, (2013), but contradict the conclusions of Amin and Audu (2006) and Frimpong and Oteng-Abayie (2006), respectively. Similarly, population growth is negative and statistically significant in the first year lag.…”

“…The results indicates a negative and insignificant effect of external debt on growth. Adegbite et al, (2008) used ordinary least squares and generalised least squares method to examine the relationship between external debt and growth in Nigeria from 1975 to 2005. They found a negative and significant effect of external debt and debt service on economic growth.…”

The impact of external debt on growth: Evidence from highly indebted poor countries

“…They also found short-run and long-run negative causality that runs from debt service to GDP. Adegbite et al (2008) investigated the impact that Nigeria's huge external debt stock had on its economic growth between 1975 and 2005. They used a 'Solow-type' neoclassical growth model to regress the ratio of external debt to GDP (along with several other macroeconomic and external sector exogenous variables) against the annual GDP growth rate.…”

External Debt and Growth Dynamics in Nigeria

“…The first group is purely grounded on time series data analysis. For example, in Nigeria, Adegbite et al () used annual time series data and ordinary least squares and generalized least squares method to investigate the impact of external debt on Nigeria's economic development from 1975 to 2005. They found a negative effect of external debt and its servicing obligations on economic growth.…”