THE EFFECTS OF EXTERNAL DEBT AND OTHER SELECTED MACROECONOMIC VARIABLES ON INVESTMENT IN NIGERIA

Abstract

Foreign Loans can be a viable option for Nigeria to achieve developmental goals if optimally deployed into investment in the economy. However, if misused, it can lead to debt overhang. For this reason, the study assesses the impact of debt overhang and crowding out effects hypotheses on investment in Nigeria for the period of 1981 to 2018. In order to achieve that, a macro-econometric model with investment (IVT) as endogenous variable was estimated. The exogenous variables employed in the estimated model were Interest rate (INT), Gross Domestic Product (GDP), Debt-Export Ratio (D/X) and Debt-Gross Domestic Product Ratio (D/GDP).The Error Correction Mechanism estimation technique was adopted after the unit root test. The results obtained shown that all the variables were highly significant at the 5 per cent level. The coefficient of the ecm (-1) is negatively signed and statistically significant at 5 per cent level as expected. The estimated macro-model indicates that there was no autocorrelation in the equation. The direct relationship of gross Domestic Product (GDP) and Debt-Export Ratio (D/X) confirms expansionary effect of the aforementioned variables on investment. Therefore, the government should adequately mobilize the productive economy to enable a continuous increase in GDP and Export goods for investment expansion.