External Debt and Economic Growth in Nigeria: Long Run Analysis

Paul Ndubuisi

doi:doi:10.11648/j.ijfbr.20190506.17

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External Debt and Economic Growth in Nigeria: Long Run Analysis

Paul Ndubuisi

Published in International Journal of Finance and Banking Research (Volume 5, Issue 6)

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.

Published in	International Journal of Finance and Banking Research (Volume 5, Issue 6)
DOI	10.11648/j.ijfbr.20190506.17
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), 2019. Published by Science Publishing Group

Keywords

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

References

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[7]	Krugman, P. (1988). Financing vs. forgiving a debt overhang. Journal of development Economics, 29 (3), 253-268.
[8]	Pattillo, C. A., Poirson, H., & Ricci, L. A. (2002). External debt and growth (No. 2002-2069). International Monetary Fund.
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[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.
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[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.
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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.
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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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ACS Style

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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AMA Style

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://article.sciencepublishinggroup.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
IS  - 6
ER  -

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Author Information

Paul Ndubuisi

Department of Banking and Finance, Abia State University, Uturu, Nigeria

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Plain Text BibTeX RIS

APA Style

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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ACS Style

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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AMA Style

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

Copy | Download

@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://article.sciencepublishinggroup.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}
}

Copy | Download

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
IS  - 6
ER  -

Copy | Download