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EFFECT OF DEBT SERVICING ON ECONOMIC GROWTH: EVIDENCE FROM NIGERIA
Abstract
This study examines the effect of debt service on economic growth using a time series data of 20 years (1996-2015). The data were collected from the CBN statistical bulletin and government gazette. The study was predicated on expost facto research design, the data collected were analysed using unit root, co-integrations and ordinary least square regression. The analysis result revealed a significant long run relationship between real gross domestic product (RGDP) and external debt (EDEBT) and debt service (DEBT) and an insignificant long run relationship between real gross domestic product (RGDP) and domestic debt (DDET). Secondly, the regression analysis result revealed that external debt and debt servicing has a positive significant effect on economic growth in Nigeria. Real gross domestic product and external debt services exhibit the inelastic relationship. Based on the above findings, we recommend that Debts should be contracted solely for economic capital formation purposes since capital formation has direct impact on economic growth.
Keywords: Domestic debt, External debts, Debt servicing external debt, Real Gross domestic product, Debt burden and Gross fixed capital formation.