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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
JUNE 2011
VOL 3, NO 2
investment and to support balance of payment deficits which cannot be repaid when it fall due
Obadan (1996) opines that the seed of external debt problem was sowed in 1978 when the first
loan of 1billion US dollars known as Jambo loan was obtained. Therefore, one of the objectives
of this paper is to examine the impact of agricultural and manufacturing output on the growth of
the Nigerian economy.
Therefore, this paper examines the impact of external debt burden on the growth of
Agricultural and manufacturing output in Nigeria. The paper is divided into five sections. The
next section discusses some relevant literatures. Section III dwells on theoretical frame work and
methods. Section IV is concerned on the empirical result and discussion, while section V is the
concluding remarks.
LITERATURE REVIEW
In this paper, the review of related literature is undertaken; the review is done under the
following headings: (i) The rationale for external borrowing. (ii)Causes of external indebtedness.
THE RATIONALE FOR EXTERNAL BORROWING
Economic literature abounds with view on the importance of external source of finance
for economic growth and development (Todaro and Smith, 2006). To support this view, it is
common knowledge that shortly after the Second World War, the economies of most Western
European countries experienced rapid growth and development due in part to the injection of
foreign finance under the Marshall plan.
By the time of the termination of this plan in 1951, some 12.5 billion dollars have been
invested in the reconstruction of Western Europe. Even West Germany owed 16 billion marks to
the United States, France and United Kingdom between 1945 and 1953 and this was also used
for the reconstruction of the country. Much earlier during the 19 th century, foreign capital
inflows played a critical role in the construction of Siberian Eastern railroad in Russia. This was
made possible through loans from British, German and Japanese financial interests. Foreign
capital has also made incursions into the privatization programmes particularly in developing
countries and even in Eastern Europe after the fall of the Soviet Union in the 1990s. Much of this
capital has been in the form of equity based investment on financial securities and they have
helped to raise the necessary finances for the development of these countries.
In other words, external resources play a crucial role in supplementing domestic
resources to meet a country’s set objectives (Todaro, 2006). Apart from supplementing domestic
savings, external capital inflow provides a country with foreign exchange, which is needed to
import the necessary machinery and technical expertise for the promotion of economic growth
(Nowzad, 2003). Viewed from this perspective, external finance plays a critical role in the
creation of the possibilities for more jobs, more investment and higher standard of living
(Friedman, 1984). This view is shared by Anyanwu (1997) to the effect that external borrowing
enables a developing country, for instance, to increase its rate of real investment in order to
stimulate growth.
CAUSES OF EXTERNAL INDEBTEDNESS
Hunt (2007) opines that a number of factors contribute to the increased size of external
indebtedness. One of the domestic causes of indebtedness in developing countries has been the
over ambition of public authorities to speedily boost economic growth and development in the
face of inadequate domestic capital formation through the rapid acquisition of foreign loans. In
the process, most of their governments, particularly military ones in the 1970s and 1980s,
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