External debt and economic growth in Nigeria

Abstract

External credits have been received from various sources including bilateral and multilateral arrangements but the country’s debt is a source of worry since the projects for which these loans were contracted cannot finance the credit facilities. This paper focused on the impact of external debt on economic growth in Nigeria within the period of 1980 to 2016. Thus, secondary data on gross domestic product and external debt were sourced from CBN statistical bulletin and debt management office fact book. The econometric method of Generalized Method of Moments(GMM) test was used. Priori the GMM test is the Kwiatkowski, Phillips, Schemidt and Shin, (KPSS) unit root test to ascertain the stationarity of the variables. Based on the empirical results; the KPSS stationarity test for each of the series showed that all the variables were stationary at order one as their respective LM statistics was less than the critical value at 5%. The GMM test shows that external debt and economic growth has positive and significant relationship with R2 of 54 percent. Therefore, to achieve long-term solution to the problem of external debts burden, government should stimulate domestic production to liberate the Nigerian economy from the shackles of wants and excessive dependence on external economics, which build up debt. Also, government should avoid unnecessary and unproductive borrowing that will serve as a leakage to the economy. This to a large extent will enhance the growth of the Nigerian economy.