An empirical investigation into the impact of external debt on economic growth in Nigeria

The study analyses the impact of external on economic growth in Nigeria. The time series data were derived from various secondary sources such as: the Central bank of Nigeria statistical bulletins, Economic and Financial Review and Annual reports and statement of accounts and Federal Office of Statistics (FOS).Data were also extracted from Debt Management Office (DMO) publications and website. The macroeconomic data cover gross domestic product (GDP) and external debts from 1992-2012. The estimated techniques includes the Ordinary Least Square (OLS) method, Augmented Dickey- Fuller (ADF) unit root test, Johansen Co-integration test and Error Correction Method (ECM). The results revealed that external debt impacted positively on the economic performance of Nigeria. The paper also revealed that external debt is not significantly affecting economic growth in the country, but all the same, a good performance of an economy in terms of per capita growth may be attributed to the level of external debt in the country; therefore external debt is a stimulant to the economic progress of the country. The paper found that external debts if properly manage can lead to high growth level. A major policy implication of this result is that concerted effort be made by policy makers to manage the debt effectively by channeling them to productive activities (real sector) so as to increase the level of output in Nigeria, hence achieving the desire level of growth. Another policy implication of the study is that most developing countries contract debt for selfish reasons rather than for the promotion of economic growth through investment in capital formation and other social overhead capital. For debt to promote growth in Nigeria and other highly indebted countries fiscal discipline and high sense of responsibility in handling public funds should be the Watchword of these countries’ leaders. External debt can only be reduced to the barest minimum by increasing output level (GDP).