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ABSTRACT

The study aims to ascertain the impact of external debt on the economic growth of Nigeria. The specific objectives are to ascertain the impact of external debt and external debt servicing on gross domestic product with equivalent research questions and research hypotheses. The research design used is the ex-post-facto research design, secondary data were collected from the CBN statistical bulletin. The method of data analysis is ordinary least squares statistical technique with the aid of the SPSS software. The findings show that external debt has no significant impact on economic growth. The findings also show the external debt servicing has a significant impact on economic growth. Recommendations that were made from the findings include that government should reduce the level of debt accumulated overtime and government should not hesitate to clear external debt through external debt servicing.

Description

TABLE OF CONTENTS

Title page

Declaration                                                                                                 i

Certification                                                                                                 ii

Dedication                                                                                                   iii

Acknowledgements                                                                                     iv

Abstract                                                                                                      v

List of tables                                                                                               viii

 

CHAPTER ONE: INTRODUCTION

1.1     Background to the Study                                                                    1

1.2     Statement of problem                                                                        5

1.3     Objectives of the study                                                                     6

1.4     Research Questions                                                                            6

1.5     Research Hypotheses                                                                         6

1.6     Scope of the study                                                                               7

1.7     Significance of the study                                                                    7

 

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1     Conceptual framework                                                                       8

2.1.1 Sources of external debt                                                                     10

2.1.2  Forms of foreign aid/external debt                                                      12

2.2     Theoretical framework                                                                       14

2.2.1  Debt-cum-growth model                                                                    14

2.2.2  Threshold school of thought (Debt laffer curve)                                  14

2.2.3  Profligacy theory                                                                               15

2.2.4  Harrod-Dormar theory                                                                       16

2.2.5  The two gap model                                                                            16

2.2.6  The three gap model                                                                          17

2.3     Empirical review                                                                               17

 

CHAPTER THREE: RESEARCH METHODOLOGY

3.1     Research design                                                                                 25

3.2     Sources of data                                                                                  25

3.3     Method of data analysis                                                                     25

3.4     Model specification                                                                            25

3.5     Description of variables                                                                      26

3.6     Description of dependent variable                                                     26

3.7     Analytical procedure                                                                         27

 

CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION

4.1     Data presentation and analysis                                                          28

4.1.2  Test of hypothesis                                                                              28

4.1.3  Hypothesis 1                                                                                     28

4.1.4  Hypothesis 2                                                                                      32

 

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1     Summary of study                                                                             35

5.2     Summary of findings                                                                         35

5.3     Conclusion                                                                                       35

5.4     Recommendations                                                                             36

5.5     Suggestion for further research                                                          37

References                                                                                         38

Appendices                                                                                       42

 

CHAPTER ONE

INTRODUCTION

1.1     Background to the Study

According to Wikipedia (2018) External debt is the total debt a country owes to foreign creditors. The debtors can be the government, corporations or citizens of another country. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank.

Most developing countries of the world are regarded as being poor not because they don’t have the resources but because bulk of their resources (income) are being channeled to meeting the consumption needs of their people with little or nothing left for savings. Hence low savings rate brings about low investments rate and low investments rate results to low growth rate.

Therefore, poverty at the beginning through low savings, low investments and low growth leads to poverty again (poverty trap). For this reason, developing countries are left with no option than to result to external borrowings and foreign assistance (foreign aid) to bridge the saving- investment gap with the intention to achieving economic growth and poverty reduction.

 

Official development assistance (ODA), more commonly known as foreign aid, consists of resource transfers from the public sector, in the form of grants and loans at concessional financial terms, to developing countries. Many studies in the empirical literature on the effectiveness of foreign aid have tried to assess if aid reaches its main objective, defined as the promotion of economic development and welfare of developing countries (Sandrina, 2005).

On the other hand, the act of borrowing creates debt. Debt therefore, refers to the resources of money in use in an organization which is not contributed by its owners and does not in any other way belong to them, it is a liability represented by a financial instrument of other formal equivalent (Udoka and Ogege, 2012).

 

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Conceptual Framework

External debt is the total debt a country owes to foreign creditors, complemented by internal debt owed to domestic lenders. The debtors can be the government, corporations or citizens of that country. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank. Note that the use of gross liability figures greatly distorts the ratio for countries which contain major money centers such as the United Kingdom due to London’s role as a financial capital. Contrast with net international investment position (Wikipedia 2018).

According to the International Monetary Fund, “Gross external debt is the amount, at any given time, of disbursed and outstanding contractual liabilities of residents of a country to nonresidents to repay principal, with or without interest, or to pay interest, with or without principal”.

In this definition, the IMF defines the key elements as follows:

Outstanding and actual current liabilities

Debt liabilities include arrears of both principal and interest.

Principal and interest: When the cost of borrowing is paid periodically, as commonly occurs, it is known as an interest payment. All other payments of economic value by the debtor to the creditor that reduce the principal amount outstanding are known as principal payments. However, the definition of external debt does not distinguish between principal payments or interest payments, or payments for both. Also, the definition does not specify that the timing of the future payments of principal and/or interest need be known for a liability to be classified as debt.

Residence: To qualify as external debt, the debt liabilities must be owed by a resident to a nonresident. Residence is determined by where the debtor and creditor have their centers of economic interest—typically, where they are ordinarily located—and not by their nationality.

Current and not contingent: Contingent liabilities are not included in the definition of external debt. These are defined as arrangements under which one or more conditions must be fulfilled before a financial transaction takes place. However, from the viewpoint of understanding vulnerability, there is analytical interest in the potential impact of contingent liabilities on an economy and on particular institutional sectors, such as the government.

Generally, external debt is classified into four heads: public and publicly guaranteed debt; private non-guaranteed credits; central bank deposits; and loans due to the IMF.

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