Effect of External Debt on Economic Growth of Nigeria

Abstract

The study examines the effect of external debt on the economic growth of Nigeria. The model built for the study proxy gross domestic product as the endogenous variable measuring economic growth as a function of external debt, ratio of external debt to export, inflation, and exchange rate proxy as the exogenous variables. Annual time series data was gathered from the Central Bank of Nigeria Statistical bulletin and Debt Management Office from 1970 to 2010. The econometric techniques of Ordinary Least Square(OLS), Augmented Dickey-Fuller (ADF) Unit Root test, Johansen Co-integration test and Error Correction Method (ECM) are employed in the empirical analysis. The co-integration test shows that long-run equilibrium relationship exist among the variables. The findings from the error correction method show that external debt has contributed positively to the Nigerian economy. The study recommends that government should ensure economic and political stability and external debt should be acquired largely for economic reasons rather than social or political reasons.

Keywords: External Debt, Economic Growth, Gross Domestic Product, Error Correction Method.