External Debt and Nigeria’s Economic Growth Nexus, Matters Arising

Olalekan Obademi () and Olawale. O. Okubanjo

International Journal of Financial Economics, 2013, vol. 1, issue 2, 61-66

Abstract: This study focuses on the impact of external debt on economic growth of Nigeria and in order to carry out an empirical analysis a Simple Regression analysis of the least square method of parameter estimator was done. The significance of the estimated parameters was also subjected to tests like Analysis of Variance, Student t- test, Correlation coefficient (R) and Coefficient of determination R2. The empirical results via the parameters’ estimates revealed that external debt and debt service have negative and positive influence respectively, though the external debt’s estimate was not too strong, on economic growth. The empirical Student t-test and F-statistic when compared with theoretical table values at both 1% & 5% significance level, suggests the acceptance of Null hypothesis stated for equation I which confirms the validity of the negative impact of external debt on economic growth of Nigeria and the acceptance of Alternative hypothesis for equation II which confirms the positive significant relationship between economic growth and debt service. However, the R2 of 53% and 64% reveal that the equations of the models were well fitted that is the independent variable was adequately explained by the explanatory variables. In view of the negative contribution of external debt to economic growth, it is recommended among others, that cost-benefit analysis, prioritization of projects, absorptive capacity of the economy, investment on productive self-financing projects, probity as well as accountability in handling government resources and debt sustainability should form the basis for contracting external debt finance.

Date: 2013
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