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External Debt Financing and Public Capital Investment in Nigeria: A Critical Evaluation

Author

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  • Omodero Cordelia Onyinyechi

    (Clifford University, Owerrinta, Abia State, Nigeria)

Abstract
This study considers the consequences of external loan on capital investment in Nigeria. Data for the study have been collected from the World Bank and Central Bank of Nigeria Statistical Bulletin, 2018 edition. The variables on which data are sourced include government capital expenditure, external debt accumulation, debt servicing cost, inflation rate, and exchange rate. Government capital expenditure is the dependent variable, while external debt accumulation and debt servicing cost are the key independent variables. Inflation and exchange rates are used as the moderating variables. The scope of the study covers the period from 1996 to 2018 and the data are analysed using the ordinary least squares multiple regression method. The regression results indicate that external debt has a significant negative impact on capital investment while debt servicing cost has a strong and significant positive effect on capital investment. Under this circumstance, the controlling variables are not significant in influencing capital investment. Hence, the study suggests more focus on profitable capital investments if external borrowing must be embarked upon. The need for the development of untapped natural resources, establishment of industries and revival of abandoned industries to boost debt repayment has been emphasized. The study also strongly recommends that the existing governments (state and federal) should endeavour to complete capital projects of past administrations in order to drive the economy and to avoid wastage of financial resources including the borrowed funds.

Suggested Citation

  • Omodero Cordelia Onyinyechi, 2019. "External Debt Financing and Public Capital Investment in Nigeria: A Critical Evaluation," Economics and Business, Sciendo, vol. 33(1), pages 111-126, January.
    • Handle: RePEc:vrs:ecobus:v:33:y:2019:i:1:p:111-126:n:8
    DOI: 10.2478/eb-2019-0008
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Capital investment; Debt servicing; External debt; Exchange rate; Inflation rate;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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