The Impact of Disaggregated Components of External Debt on the Economic Development of Nigeria (1969-2011)

Abstract

This paper examines the impact of disaggregated components of external debt on the economic development of Nigeria for the period 1969 to 2011. A least square regression analysis was carried out on a time series data, and to avert the emergence of spurious results, a unit root test was conducted. Other econometric advances of co integration, Vector Auto Regression techniques as well as granger causality tests were deployed to ascertain the order of co integration and levels of relationships. With the aid of E-view statistical package-version 7.0, robust models for estimating the impact of external debts on the economic development of Nigeria were developed.  In the short run, the result shows that while multilateral and miscellaneous sources of external debt had positive significant relationships with economic development; Promissory notes maintained a significant negative relationship. In the long run only the lagged value of GDP (in the second year), taken as an independent variable was found to be positively significant. In other words, there is no significant long run relationship between external debts and the level of economic development in Nigeria. Other sources of external debt that were hitherto significant in the short run, turned out to be insignificant in the long run. It was also ascertained that there exists a causality relationship between external debts and economic development in Nigeria. While a bidirectional relationship exists between multilateral debt and economic development, it was more of a unidirectional relationship between external debts owed the London club, Paris club and other miscellaneous sources with economic development. The study therefore recommends that Nigeria should not only be more careful in taking new loans but to make sure that any one taken is channeled to productive uses. It further advised that developmental activities should be financed majorly through increased export earnings spearheaded by an export-led growth strategy, and that with serious determination and discipline on the part of the government; it is possible to make Nigeria a debt free nation!

Keywords: External debt, Economic growth Paris Club, London Club, Multilateral Club, Promissory notes, miscellaneous sources of debts, Debt Relief