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EXTERNAL DEBT CRISIS, GROSS FIXED CAPITAL FORMATION AND ECONOMIC GROWTH IN NIGERIA

Ekiran, Joseph Ojo (Ph.D)

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Abstract

Nigeria has witnessed a remarkable increasing trend of external debts (EXDC) and volatile gross fixed capital formation (GFCF) over the years. The overarching question here is whether the variations in the EXDC and GFCF have made significant contribution to the economic growth in the country. This study therefore investigates the dynamic relationships among economic growth, external debt crisis and gross fixed capital formation in Nigeria for the period between 1981 and 2022. The research work adopts Harrod-Domar growth theory and Solow-Swan model. The study employed Phillips-Perron unit root model to test the stationarity of the research data. Autoregressive Distributed Lag (ARDL) was used to verify the dynamic relationships between the dependent and independent variables of the research model. Pairwise granger causality test was carried out to test the causality properties of the examined variables. The study concludes a significant negative relationship between external debt crisis and economic growth in Nigeria during the observed period. A negative relationship contrary to the a priori expectation of the study was also observed between the economic growth and gross fixed capital formation in the country. Stemming from these aforementioned outcomes, the study recommends that policy makers should as a matter of urgency come up with policies that encourage prudent fiscal management for external debt reduction and conducive business environment for increased gross fixed capital formation through private investment in Nigeria.

Keywords: External Debt Crisis, Gross Fixed Capital Formation, Economic Growth, Phillips-Perron, Autoregressive Distributed Lag.