Abstract

This study investigated the impact of external debt on economic growth in Nigeria for the period 1980-2015. Time series data on external debt stock and external debt service payment was used to capture external debt burden. Other variables such as exchange rate and Foreign Direct Investment where employed. The study set out to test for both long-run and causal relationship between eternal debt and economic growth in Nigeria. The Multi Linear Regression Method was used, and the technique employed is the Ordinary Least Square (OLS) with the following tests, Augmented Dickey Fuller (ADF) test, Johansen Cointegration test, and Vector Error Correction Model and Granger Causality test. The regression result showed a negative relationship between external debt and economic growth. While the long-run test revealed that the independent variables have long-run relationship with economic growth and no causality exists between external debt and economic growth. The study recommends that external debts should be contracted solely for economic reasons and should be engaged more into capital expenditure than recurrent expenditure, the debt management authority should adequately keep track of the debt payment obligations and the debt should not be allowed to pass a maximum limit so as to avoid debt overhang, the government should promote the export capacity of the economy and curtail excessive importation of consumable goods in order to generate large foreign exchange for the amortization of its impending debts. And finally that the government should influence the channeling of FDI into establishment of new operations and investment into real asset in order to promote the production capacity of the economy.