Effect of External Debt on Real Gross Domestic Product Growth Rate of Nigeria, Ghana and Benin Republic

Abstract

The study investigated the impact of external debt on gross domestic product growth rate of Nigeria, Benin Republic and Ghana from 1986 to 2021. Real gross domestic product growth rate was the proxy for macroeconomic indicators, while external debt was the independent variables. Ex post facto research design was adopted in this study. Data were sourced from the various issues of the Central Bank of Nigeria (CBN) statistical bulletin, Bank of Ghana, Bank of Benin Republic and statement of account as well as the National Bureau of statistics Annual Reports. Vector Error Correction and Autoregressive Distributed Lag models were used for data analysis. Various econometric preliminary test techniques such as Augmented Dickey–Fuller unit root test and Johansen cointegration test and model diagnostics test were equally carried out. Results revealed that external debt has a positive and significant impact on the real gross domestic product of Nigeria, Ghana and Benin Republic. It was concluded that external debt plays important roles in shaping the short-run and long-run economic growth of Nigeria, Ghana, and Benin Republic. This study recommends that to reduce reliance on external debt and foreign exchange rate fluctuations, countries should direct borrowed funds to education, health and other productive ventures that will boast economic growth and increase the general wellbeing of the citizenry. Policymakers should ensure that debt servicing does not crowd out essential public expenditures or hinder economic growth. The need for fiscal discipline in managing external borrowing and ensuring that borrowed funds are utilized efficiently to promote economic growth and raise per capita income across the countries is imperative.