A Thrifty North and An Impecunious South: Nigeria's External Debt and the Tyranny of Political Economy

This research book relays the exposition that foreign capital and institutional quality play essential roles in the development process of developing economies. That debt is a double-edged sword: it is helpful if, in the future, the proceeds from its investment pay off the debt entirely, or at least, its derived social benefits outweigh its cost. If otherwise, the result is a debt cycle that is difficult to get out of. We estimated an augmented debt-growth model with the inclusion of governance indicators (control of corruption and government effectiveness) to explain Nigeria’s dilemma as the largest concentration of the Blackman. The estimated results from the augmented debt-growth model established a nonlinear inverted relationship between debt and economic growth on the one hand. On the other hand, an augmented money function confirms expansionary fiscal policy financed by excessive borrowing which fueled inflation. The findings further revealed that only 16 per cent of Nigerians (small dysfunctional group of elites and political masquerades who disguise as leaders) are not miserable, yet, they control the wealth and resources of the country. The ability to control corruption shows a negative but significant relationship to economic growth. This implies that government institutions which necessitate the control of corruption are not effective enough in engendering the required outcome for growth. It further indicates that overall, the policy stance of governments in Nigeria over the period has not been efficient and fair in resource redistribution; such retards economic growth and portrays the existence of state capture, probably by a cabal. Accordingly, the possibilities of economic change are limited by the realities of political power and elite capture, just as governance mechanisms are beset by high inequality, nepotism and civic malaise, yet, we “Blame Economists for the Mess We’re In”. Here lies the tyranny of political economy! From recent developments, having analyzed the records in the last three decades and simulated various scenarios, Nigeria’s development policy has worsened in resolving its development problems. Debt servicing costs make up two-thirds of retained government revenue. Why it is not an easy task for Nigeria to efficiently utilize foreign debt because of vested interest, rent-seeking behavior and state capture. It is only in the presence of good macroeconomic policies and sound state institutions that external debt positively impacts economic growth, and this is lacking in Nigeria. Nigeria needs to build a strong, knowledge-based, and dynamic economy that emphasizes equality and equity more than efficiency and an economy that is diversified from oil reliance to generate jobs and reduce the unemployment rate, especially among youths.