An Assessment of the Impact of External Debt on Economic Growth of Nigeria

Abstract

This study investigated the impact of external debt on economic growth in Nigeria. The traditional view considers that in the long run, external debt has a negative impact on economic growth while the Ricardian equivalence hypothesis implies the neutrality of external debt to growth. In Nigeria, external debt has been incurred mainly on the consideration that it should be used for investment purposes. The issue was empirically examined using the cointegration test and the error
correction test for Nigeria over the period 1980 to 2012. Findings from this study supported the traditional view between external debt and growth. Also the study found the non-existence of debt overhang problem for Nigeria. It is recommended from the study that development activities in Nigeria be financed through increased export earnings spearheaded by an export-led growth strategy as well as investment in human resource as these can be the best alternative to external debt in the long run.