Examining the Relationship Between External Debt and Economic Growth in Nigeria
Chapter One
OBJECTIVES OF THE STUDY
The broad objectives of the study are mainly:
- To critically examine the external debt problem in Nigeria between 1993 to 2004
- To assess the problems of external debt and their implications on the economies of the debtors countries.
- To analyze the factors affecting debt servicing capacity of nations.
- To analyze the impact of external debt problem on he level of money supply in an economy.
- To suggest and recommend ways of improving on the debt management policies in Nigeria.
- To determine external debt problem on level of employment.
- To determine factors affecting economic growth.
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
EXTERNAL DEBT
The concept of borrowing dates back to the biblical era. When the children of Israel were leaving Egypt, they borrowed whatever they needed from the Egyptians while leaving the land of their captivity. In the modern era, borrowings by countries occur as a result of inability to generate enough domestic savings to carryout productive activities. Such external borrowings by countries are meant to supplement the domestic saving and allow such countries to carry out productive activities (Ezeabesili, 2011). A country can also borrow in the short term, from external sources, to finance current account deficits arising from external disturbances in order to shore up external reserves position and strengthen external liquidity position in the future. Foreign borrowing is seen to be desirable and necessary to accelerate economic growth, provided they are channeled to increase the productive capacity of the economy (Udoffia & Akpanah, 2016). External debt is an essential source of finance mainly used to augments the local sources of funds for supporting development and other needs of a country. Usually external debt is incurred by a country which suffers from shortages of domestic savings and foreign exchange needed to achieve its developmental and other national objectives. However, if the external debt is not profitably and productively used, the effort of a debtor country in paying the debt becomes a critical concern as such may result to bad debt. External debt therefore refers to the mobilization of fund and resources generated elsewhere outside the home country. Udoffia and Akpanah (2016) relate external debt to packages that consist of a combination of financial, technical vis-à-vis managerial requirements emanating from outside the country, aimed at supporting economic growth and development and are repayable at determined future date in foreign currency. Anyanwu (1993) in his own opinion sees external debt as the amount, at any given time, of disbursed and outstanding contractual liabilities of residents of a country to non-residents to repay principals with or without interest or to pay interest, with or without principal. Afolabi (1999) sees external debt as credits that are obtained in foreign exchange and are also to be serviced and repaid in international currency. Continuing, he opines that such loans may be bilateral that is negotiated between two countries mainly on mutual basis and in a friendly manner. It may also be multilateral where another party is acting “in-between” the borrowing and the lending parties or where the loan is syndicated in which case one party has to act for the membership of the financing syndicate. From Anyanwu’s perspective of external debt definition, the liabilities that dropped within his core definition include: currency and transferable deposits, other deposits, short-term bills and bonds, long-term loans (not classified elsewhere) and trade credit and advances. Continuing he sees foreign borrowing as a means of supplementing national resources (domestic) an immediate reduction in other uses of resources for either consumption or capital formation. The World Bank (1998) described external debt as the amount of money at any given time disbursed and outstanding contractual liabilities of residents to pay interest, with or without principal. Many developing countries resort to external borrowing to bridge the domestic resource gap in order to accelerate economic development. It means that the processes areutilized in a productive way that facilitates the external servicing and liquidation of the debt (Oke & Sulaiman, 2012).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine analysis of external debt and economic growth in Nigeria. CBN in Lagos state form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain analysis of external debt and economic growth in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing analysis of external debt and economic growth in Nigeria
Summary
This study was on analysis of external debt and economic growth in Nigeria. Seven objectives were raised which included: To critically examine the external debt problem in Nigeria between 1993 to 2004, to assess the problems of external debt and their implications on the economies of the debtors countries, to analyze the factors affecting debt servicing capacity of nations, to analyze the impact of external debt problem on the level of money supply in an economy, to suggest and recommend ways of improving on the debt management policies in Nigeria, to determine external debt problem on level of employment and to determine factors affecting economic growth. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN in Lagos. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
External debt plays a crucial role in an economy. The optimal utilization of external debt by the government would avoid debt overhang and crowding out of investments. The bane of the study has been to examine the effect of external debt on the economic growth of Nigeria. The study employed the Johansen co-integration test and Error Correction Method. The co-integration test shows the existence of long run equilibrium relationship among the variables. The error correction method reveals that the lagged error correction term in the over-parameterized and parsimonious models is significant judging from its negatively signed coefficient.
Recommendation
Based of the findings in the study, recommendations were made. Firstly, the government should ensure economic and political stability in order to enjoy the benefits of external debt and make the debt burden minimal. Secondly, government should acquire external debt largely for economic reasons rather than social or political reasons. This would increase the productivity of the nation. Thirdly, government should diversify the nation’s export base so as to increase export earnings and promote industrialization in order to reduce import dependency. Also, the government through its monetary authorities should put measures in place to curtail the inflationary trend in the economy. Furthermore, stability in the exchange rate should be pursued and depreciation in the Naira should be avoided by the government. Lastly, government should press for permanent debt relief so as to avert debt overhang problem
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