|29th IBIMA Conference
3 - 4 May 2017
Effect of External Debt and Economic Growth: Evidence from Nigeria
Lawrence Uchenna Okoye, Nwanneka J. Modebe, Erin Olayinka Adedayo and Grace O. Evbuomwan,
financing is an integral part of modern economies as developed and
developing nations either borrow to drive the process of economic
growth and development or to support existing level of economic
activities. It is a government policy of stimulating the economy by
deliberately budgeting an expenditure in excess of revenue (from taxes,
royalties, and sundry sources) through injection of funds to stimulate
or maintain the level of economic activities, the excess being financed
by borrowing. Nwankwo (2011) posits that governments all over the world
engage in borrowing but explains that while developing nations borrow
to finance economic and social development projects, developed nations
borrow primarily to keep the economy running and making progress.
governments borrow from internal and external sources. However while
domestic borrowing has been largely criticized for its crowding-out
effect on private domestic investment, external borrowing is subject to
external influences such as interest and exchange rates changes as well
as inflationary trends. External borrowing leads to an injection of
funds (new money) into the domestic economy. Government external
borrowing was justified in Nnoli (1978) who asserts that at the time of
political independence, leaders considered national resources grossly
inadequate and incapable of sustaining rapid economic development.
Beyond the initial period of nationhood, Onosode (2004) argues that
foreign capital, technological capability and know-how are required for
any serious economic development. Debt financing therefore is an
integral part of national existence.
There have been opposing arguments on whether external debt is actually a veritable instrument of promoting economic growth in debtor nations. Empirical findings in this area have been mixed. This paper therefore seeks to determine the effect of external debt on economic growth in Nigeria.