ABSTRACT

Abstract

External debt arises as a result of the gap between domestic saving and investment. As gap widens, debt accumulates and this make the country to continually borrow increasing amount in order to stay afloat. This study evaluates the effect of external debt on economic growth of Nigeria from 1986-2016. The paper used secondary sources of data using time series data on external debt, foreign direct investment, external debt services, and exchange rate was used to capture the effects as they relevant macroeconomic variables. The study also tests for the long run and causal relationship the variables. The empirical investigation was conducted using time series data on RGDP, FDI, ED, EDS, and EXR for the period of 1986-2016. The techniques of estimation employed in the study include Augmented Dickey Fuller (ADF) test, Johenson co-integration test and Granger causality test. The analytical technique employed was OLS multiple regression analysis. The result reveals an insignificance long run relationship between external debt and economic growth of Nigeria which shows a positive relationship between FDI and EXR and the real gross domestic growth. While on the contrary ED and EDS has a negative relationship with the real gross domestic product. The study recommended that Debt management office (DMO) should set mechanism in motion to ensure that loans are effectively and efficiently utilized for the purpose of which the loans are acquired.

 Keywords: External Debt; Economic Growth; Econometric Methods; Nigeria.