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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
JUNE 2011
VOL 3, NO 2
often occurs when there is gap in investment and domestic savings are not sufficient enough to
bridge the gap that has been so created.
METHOD OF DATA ANALYSIS
It is important to describe the data used for the estimation before presenting the result. Data
relating to external debt, manufacturing output, agricultural output, debt service and government
expenditure is sourced from National Bureau of statistics and Statistical Bulletin of Central Bank
of Nigeria. Annual data from 1980 to 2008 were collected, this is to enable us have a
considerable degree of freedom.
The time series data on agricultural and manufacturing output are subjected to
Augmented Dickey-Fuller (ADF) test of stationarity. The model and functional form are linear;
the results of the estimation are reported in tabular form.
Estimation methodology is of standard time series technique with variables that are tested
for unit root. The Johansen (1991) error correction mechanism (ECM) estimation technique in
the vector auto-regressive model is employed. The ECM estimation technique incorporates time
series analysis within a dynamic framework that enables us to discern short run relationship
between the variables. In the case of a set of K variables, for example, we may have
cointegration relationships denoted by r, such that 0 ≤ r ≤ K, where K is the number of variable
and this gives a K dimensional vector auto-regressive model.
MODEL SPECIFICATIONS AND DESCRIPTION OF VARIABLES
According the Ayadi (2003), external debt burden has dramatically limited developing countries’
participation in the world economy and debt servicing obligations continue to manifest as an
impediment to economic growth and development. Debt burden has led to a limited
accumulation of capital (depletion of international reserves) and a limited application of flexible
financing policies to consolidate small and medium-sized firms. This directly affects
employment and the provision of social services. Ayadi’s model is stated as:
Y g = a 0 + a 1 DEBGDP + a 2 (DEBGDP) + a 3 DSEREXP + a 4 TOT + a 5 GCAP + U t ……………..……….. 5
Where
Y g = rate of output growth
DEBGDP = external debt to RGDP ratio
DSEREXP = debt service to exports
TOT = external shock (measured as terms of trade variability)
GCAP = growth rate of investment stock
U t
= error term
a 0 – a 5 = parameters
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