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External Debt and Economic Growth Nexus: Empirical Evidence From Nigeria

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  • Sylvester Ohiomu

Abstract

This study models external debt and economic growth nexus for policy analysis on public finance and public debt management. The work uses the methodology of group unit root test, auto-regressive distributed lag (ARDL) bounds testing, and co-integrating long-run tests for robust policy recommendations. The results showed that the debt overhang variable (D_Y) and crowding-out effect variable (DS_X) depress the level of investment. This adversely affects economic growth in Nigeria. The study recommends that Nigeria should embark on strict debt management policy, pursue effective debt reduction strategies, and improve investment drives for economic expansion and sustainable development. JEL Classification : C22, C51, E27, H63, H81

Suggested Citation

  • Sylvester Ohiomu, 2020. "External Debt and Economic Growth Nexus: Empirical Evidence From Nigeria," The American Economist, Sage Publications, vol. 65(2), pages 330-343, October.
    • Handle: RePEc:sae:amerec:v:65:y:2020:i:2:p:330-343
    DOI: 10.1177/0569434520914862
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    References listed on IDEAS

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    1. Olalekan Emmanuel Obademi & Olawale. O. Okubanjo, 2013. "External Debt and Nigeria’s Economic Growth Nexus, Matters Arising," International Journal of Financial Economics, Research Academy of Social Sciences, vol. 1(2), pages 61-66.
    2. Mohsen Bahmani-Oskooee & Hadise Fariditavana, 2016. "Nonlinear ARDL Approach and the J-Curve Phenomenon," Open Economies Review, Springer, vol. 27(1), pages 51-70, February.
    3. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
    4. Meyer, Richard L, 1979. "A Note on Capital Budgeting Techniques and the Reinvestment Rate," Journal of Finance, American Finance Association, vol. 34(5), pages 1251-1254, December.
    5. Mohammed Ershad HUSSAIN & Mahfuzul HAQUE & Richard S. IGWIKE, 2015. "Relationship between Economic Growth and Debt: An Empirical Analysis for Sub-Saharan Africa," Journal of Economics and Political Economy, KSP Journals, vol. 2(2), pages 262-275, June.
    6. Siew-Peng Lee & Yan-Ling Ng, 2015. "Public Debt and Economic Growth in Malaysia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(1), pages 119-126, January.
    7. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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    Cited by:

    1. Gildas Dohba Dinga & Dobdinga Cletus Fonchamnyo & Giyoh Gideon Nginyu & Chuo Joshua Njuh, 2020. "Short and Long Run Dynamic Common Correlation Effects of External Capital Inflow on Economic Growth in SSA Countries," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 8(4), pages 218-226, December.
    2. Saida Daly & Nihel Benali & Manal Yagoub, 2022. "Financing Sustainable Development, Which Factors Can Interfere?: Empirical Evidence from Developing Countries," Sustainability, MDPI, vol. 14(15), pages 1-22, August.
    3. Oyadeyi, Olajide O. & Agboola, Olayode W. & Okunade, Solomon O. & Osinubi, Tolulope T., 2024. "The debt-growth nexus and debt sustainability in Nigeria: Are there reasons to be concerned?," Journal of Policy Modeling, Elsevier, vol. 46(1), pages 129-152.

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    More about this item

    Keywords

    crowding-out; debt crisis; external debt; ARDL; modeling;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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