Re-visiting the Drivers for Increasing External Debt
DOI:
https://doi.org/10.37134/jcit.vol9.5.2019Keywords:
External debt, Oil price, Exchange rate, Domestic savings, NigeriaAbstract
This paper investigates the drives for increasing external debt in an open economy Nigeria over the period 1970 to 2017 using general to specific approach (GETS) approach (Hendry, 1995). The Johansen cointegration test confirms that variables have long run relationship. The empirical results for both long run and short run estimates indicate oil price, domestic savings and fiscal deficits play a significant role in increasing external debt in Nigeria. The study also found evidence that the dummy variables for exchange rate and debt relief also accelerate the growth of external. This finding indicates that, after the multilateral debt relief between 2005 and 2006, fresh loans are still coming to Nigeria. To this end, Nigeria should focus on investment in real sectors especially in agriculture and manufacturing to increase export performance. This would enable the country to generate adequate foreign earnings and stimulate domestic savings, and reduce reliance on oil revenue.
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References
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Adamu, I.M., & Rasiah, R. (2016a). External debt and growth dynamics in Nigeria. African Development Review, 28(3), 291-303.
Adamu, I.M., & Rasiah, R. (2016b). On the determinants of external debt in Nigeria. Available at SSRN 2865568.
Adamu & Rasiah (2017). Domestic investment, External debt and Economic growth: Cointegration and Causality Evidence from Nigeria. Journal of Contemporary Issue and Thought, 7 (1), 1 – 9.
Adedeji, O.S. & Handa, J. (2008). The Size and Sustainability of the Nigerian Current Accounts Deficits. The Journal of Developing Areas, 41 (2), 1-25.
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Anorou, E., Dimkpah, Y. & Ahmad, Y. (2006). Dynamics of External Debts among HIPC Countries. Journal of International Business Research, 5(1), 41-52.
Awan, R.U., Anjum, A., &v Rahim, S. (2015). An econometric analysis of determinants of external debt in Pakistan. British Journal of Economics, Management and Trade, 5(4), 383-391.
Bacha, E. L. (1990). A Three-gap Model of Foreign Transfers and the GDP growth in Developing Countries. Journal of Development Economics, 32, 279-296.
Bader, M., & Magableh, I. K. (2009). An enquiry into the main determinants of public debt in Jordan: An econometric study. Dirasat: Administrative Sciences, 36(1), 181-190.
Benedict, I.B., Ehikioya, I.L., & Asin, M.O. (2014). Determinants and sustainability of external debt in a deregulated economy: A cointegration analysis from Nigeria (1986-2010). American International Journal of Contemporary Research, 4(6), 201-214.
Blackmon, P. (2014). Determinants of developing country debt: the revolving door of debt rescheduling through the Paris Club and export credits. Third World Quarterly, 35(8), 1423-1440.
Brown, R.L., Durbin, J. & Evans, J.M. (1975). Techniques for testing the constancy of regression relationships over time (with Discussion). Journal of the Royal Statistical Society, 37, 149–192.
Chenery, H.B. & Bruno, M. (1962). Development Alternatives in an open economy: The case of Israel Economic Journal, 72, 79-103.
Chenery, H.B. & Strout, A. (1966). Foreign assistance and economic development. American Economic Review, 56(4), 679-733.
Corden, W.M. & Neary, J.P. (1982). Booming sector and de-industrialization in a small open economy. Economic Journal, 92, 825-848.
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Murwirapachena, G. & Kapingura, F.M. (2015). Determinants of external debt in South Africa: a VAR-based approach. International Journal of Economic Policy in Emerging Economies, 8(2), 138-152.
Nyatepe-coo, A.A. (1993). External disturbances, domestic policy responses and debt accumulation in Nigeria. World Development, 21(10), 1621-1631.
Ogunmuyiwa, M.S. (2011). Does External Debt Promote Economic Growth in Nigeria? Current Research Journal of Economic Theory, 3(1), 29-35.
Okoye, E.I. (2000). The Nigerian debt problem: causes and consequences and policy option. African Banking and finance Review, 1(1), 57-64.
Omotoye, R., Hari, S., Christopher, N., & Maxwell, E. (2006). Sub-Saharan Africa's debt crisis: Analysis and Forecast based on Nigeria. Emerald Managerial Finance, 32(7), 606-620.
Organization of the Petroleum Exporting Countries (OPEC), Database (2018)
Osterholm, P. & Hjalmarsson, E. (2007). Testing for cointegration using the Johansen methodology when variables are near-integrated (No. 7-141). International Monetary Fund.
Pesaran, M.H., Shin, Y. & Smith, R.J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16, 289-326.
Phillips, P. & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrica, 75(2), 335-346.
Pinto, B. (1987). Nigeria During and After the Oil Boom: A policy Comparison with Indonesia. The World Bank Economic Review, 1(3), 419-445.
Solimano, A. (1993). Debt cisis, Adjustment Policies and Capital Formation in Developing Countries: Where Do We Stand? World Development, 21(1), 127-140.
Taylor, L. (1993). Gap models. Journal of Development Economics, 45, 17-34.
Tiruneh, M.W. (2004). An Empirical Investigation into the Determinants of External Indebtedness. (PRAGUE Economic Papers, 3). University of Munich, Munich, Germany.
van Wijnbergen, S. (1984). The Dutch Disease: A disease after all. The Economic Journal, 94, 41-55.
World Bank, World Development indicators, Database (2018).
World Macroeconomic Research, Database (2018).
Adamu, I.M., & Rasiah, R. (2016a). External debt and growth dynamics in Nigeria. African Development Review, 28(3), 291-303.
Adamu, I.M., & Rasiah, R. (2016b). On the determinants of external debt in Nigeria. Available at SSRN 2865568.
Adamu & Rasiah (2017). Domestic investment, External debt and Economic growth: Cointegration and Causality Evidence from Nigeria. Journal of Contemporary Issue and Thought, 7 (1), 1 – 9.
Adedeji, O.S. & Handa, J. (2008). The Size and Sustainability of the Nigerian Current Accounts Deficits. The Journal of Developing Areas, 41 (2), 1-25.
Ajayi, S.I. (1991). Macroeconomic Approach to External Debt: A case study of Nigeria. African Economic Research Consortium (AERC) (Research Paper No. 8). Nairobi: Kenya.
Anorou, E., Dimkpah, Y. & Ahmad, Y. (2006). Dynamics of External Debts among HIPC Countries. Journal of International Business Research, 5(1), 41-52.
Awan, R.U., Anjum, A., &v Rahim, S. (2015). An econometric analysis of determinants of external debt in Pakistan. British Journal of Economics, Management and Trade, 5(4), 383-391.
Bacha, E. L. (1990). A Three-gap Model of Foreign Transfers and the GDP growth in Developing Countries. Journal of Development Economics, 32, 279-296.
Bader, M., & Magableh, I. K. (2009). An enquiry into the main determinants of public debt in Jordan: An econometric study. Dirasat: Administrative Sciences, 36(1), 181-190.
Benedict, I.B., Ehikioya, I.L., & Asin, M.O. (2014). Determinants and sustainability of external debt in a deregulated economy: A cointegration analysis from Nigeria (1986-2010). American International Journal of Contemporary Research, 4(6), 201-214.
Blackmon, P. (2014). Determinants of developing country debt: the revolving door of debt rescheduling through the Paris Club and export credits. Third World Quarterly, 35(8), 1423-1440.
Brown, R.L., Durbin, J. & Evans, J.M. (1975). Techniques for testing the constancy of regression relationships over time (with Discussion). Journal of the Royal Statistical Society, 37, 149–192.
Chenery, H.B. & Bruno, M. (1962). Development Alternatives in an open economy: The case of Israel Economic Journal, 72, 79-103.
Chenery, H.B. & Strout, A. (1966). Foreign assistance and economic development. American Economic Review, 56(4), 679-733.
Corden, W.M. & Neary, J.P. (1982). Booming sector and de-industrialization in a small open economy. Economic Journal, 92, 825-848.
Debt Management Office. (2018). Nigeria’s Debt Relief deal with the Paris club. [Online] Available: www.dmo.gov.ng/debtrelief/resources/nigdebtreldeal.pdf.
Dickey, D.A. & Fuller, W.A. (1981). “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root". Econometrica, 49(4), 1057-1072.
Edo, S.E. (2002). The external debt problem in Africa: A comparative study of Nigeria and Morocco. African Development Review, 14(2), 221-236.
Engle, R.F. & Granger, C.W.J. (1987). Co-integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55 (2), 251-276.
Greenidge, K., Drakes, L. & Craigwell, R. (2010). The external debt in the Caribbean Community. Journal of Policy Modeling, 32, 418-431.
Harberger, A.C. (1985). Lessons for debtor-country managers and policy makers. In G.W. Smith and J. T.Cuddingto (ed) Internationational Debt and Developing Countries. IBRD, Washington, D.C.
Hendry, D.F. (1995). Dynamic econometrics. Oxford University Press on Demand.
Iyoha, M.A. (1999). External Debt and Economic Growth in Sub-Saharan Africa Countries. An Econometric Study (AERC Research Paper No. 90-1999). African Economic Research Consortium, Nairobi, Kenya, p. 1-53.
Johansen, S. & Juselius, K. (1990). Maximum likelihood estimation and inference and cointegration with application to the demand for money. Oxford Bulletin of Economics and Statistics, 52, 169-2010.
Lever, H. & Huhne, C. (1985). Debt and danger: The world financial crisis. London: Penguin books Ltd.
Manzano, O. & Rigobon, R. (2007). Resource curse or debt overhang? Chapter 3 in D. Lederman and W.F. Maloney (eds), Natural resources: Neither curse nor destiny (41-70). Stanford University Press. The World Bank.
Murwirapachena, G. & Kapingura, F.M. (2015). Determinants of external debt in South Africa: a VAR-based approach. International Journal of Economic Policy in Emerging Economies, 8(2), 138-152.
Nyatepe-coo, A.A. (1993). External disturbances, domestic policy responses and debt accumulation in Nigeria. World Development, 21(10), 1621-1631.
Ogunmuyiwa, M.S. (2011). Does External Debt Promote Economic Growth in Nigeria? Current Research Journal of Economic Theory, 3(1), 29-35.
Okoye, E.I. (2000). The Nigerian debt problem: causes and consequences and policy option. African Banking and finance Review, 1(1), 57-64.
Omotoye, R., Hari, S., Christopher, N., & Maxwell, E. (2006). Sub-Saharan Africa's debt crisis: Analysis and Forecast based on Nigeria. Emerald Managerial Finance, 32(7), 606-620.
Organization of the Petroleum Exporting Countries (OPEC), Database (2018)
Osterholm, P. & Hjalmarsson, E. (2007). Testing for cointegration using the Johansen methodology when variables are near-integrated (No. 7-141). International Monetary Fund.
Pesaran, M.H., Shin, Y. & Smith, R.J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16, 289-326.
Phillips, P. & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrica, 75(2), 335-346.
Pinto, B. (1987). Nigeria During and After the Oil Boom: A policy Comparison with Indonesia. The World Bank Economic Review, 1(3), 419-445.
Solimano, A. (1993). Debt cisis, Adjustment Policies and Capital Formation in Developing Countries: Where Do We Stand? World Development, 21(1), 127-140.
Taylor, L. (1993). Gap models. Journal of Development Economics, 45, 17-34.
Tiruneh, M.W. (2004). An Empirical Investigation into the Determinants of External Indebtedness. (PRAGUE Economic Papers, 3). University of Munich, Munich, Germany.
van Wijnbergen, S. (1984). The Dutch Disease: A disease after all. The Economic Journal, 94, 41-55.
World Bank, World Development indicators, Database (2018).
World Macroeconomic Research, Database (2018).
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Published
2019-08-16
How to Cite
Adamu, I. M. (2019). Re-visiting the Drivers for Increasing External Debt. Journal of Contemporary Issues and Thought, 9, 40–53. https://doi.org/10.37134/jcit.vol9.5.2019
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