External Debt, Investment and Economic Growth: evidence from Nigeria

Abstract

This paper studies the impact of external indebtedness on Nigeria’s economic performance. We find supportive evidence for the crowding out and debt overhang hypotheses in Nigeria. Based on these results, the paper concludes that the prospects of resolving the debt crisis in Nigeria will depend on deeper debt relief, diversification of export base and substantial direct foreign investment. Debt relief will enable the country to use the lean foreign exchange earnings to procure the badly needed inputs for the industrial sector and upgrading of infrastructures. However, without a stable political and macroeconomic environment, efforts at reducing the external debt burden may not be very successful.