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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
JUNE 2011
VOL 3, NO 2
The production sector representing agricultural and manufacturing output do not
generally perform well as indicated by coefficients expected signs. This is because external debt
does make agricultural and manufacturing output to perform below expectation.
POLICY IMPLICATION OF RESULTS
The major policy implications of the results of this study is that since foreign debt has an
insignificant direct effect on economic growth, money borrowed externally must be productively
invested in growth generating ventures that could repay the debt on schedule. When foreign
loans are spent on unviable projects, their effects on macroeconomic performance are low. The
results also confirm the debt overhang hypothesis, such that high debt burdens have depressing
effect on investments. However, sustained medium term growth of Nigeria’s economy would
demand moderate increases in import of capital goods and other inputs. In order to sustain
economic growth, investment must grow rapidly and directed towards tradable production and
export especially in the agricultural and manufacturing sectors of the economy.
Both agricultural and manufacturing sectors can be stimulated by increasing the
productive capacity of the economy through foreign loans. In this regard, there is the need to
cushion government’s spending in the face of unpredictable and frequent oil price shocks.
CONCLUDING REMARKS
The results obtained from econometric investigation of the Nigerian debt problems
undertaken in this paper can now be summarized with some concluding remarks and
recommendations. The results obtained confirm and support the existence of the debt over hang
hypothesis in Nigeria. Similarly, increases in resources outflow due to servicing of external debts
result in serious depression of domestic economic activities in Nigeria in terms of contraction of
agricultural and manufacturing output.
There is an inverse relationship between changes in agricultural and manufacturing
output, but as a result of the external debt incurred in Nigeria. This indicates that the key to
reducing foreign indebtedness is increased agricultural and manufacturing output.
Indeed, the study showed that the country’s agricultural and manufacturing output of the
Nigerian economy has been depressed. The study also showed a crowded out effect on both
public and private investments in the economy. Social services could not be provided in the
country as a result of mismanagement of the externally borrowed funds. Undoubtedly, externally
borrowed funds has created a problem of debt overhang hypothesis and puzzled the realization of
economic growth and development of the country. It is interesting to note that externally
borrowed funds though has a direct contribution to the growth of the economy, the contribution
is very insignificant.
RECOMMENDATIONS
i. The use of externally borrowed funds for government projects must be closely monitored
in order to ensure that they are applied efficiently and effectively.
ii. Investigations must be carried out periodically to ensure that the optimal debt ratio is not
exceeded. That is, the debtor nations should not exceed the opportunity granted them to
borrow more funds from the creditor nations.
iii. All the tiers of governments should ensure that there is general consistency of policies as
they relate to the development of productive investment on agricultural and
manufacturing output in Nigeria.
COPY RIGHT © 2011 Institute of Interdisciplinary Business Research 406