Journal of Management Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Output-Debt Relation in an Emerging Economy


Affiliations
1 Kelce College of Business Pittsburg State University, Kansas, United States
2 Dean, Faculty of Management Sciences University of Port Harcourt, Port Harcourt, Nigeria
     

   Subscribe/Renew Journal


The relationship between aggregate output and external indebtedness of a typical African economy (Nigeria) using the St. Louis Modeling technique is investigated in this study. Contrary to critics, the St. Louis Modeling approach was found to be effective in explaining the relationships between the chosen phenomena in a typical African economy. It was also found that the total debt stock reserves had immense potentials to affect the GDP of Nigeria positively and significantly. The full influence of such external capital was felt in the third and fourth year of the life of such debts. The results also indicated that huge debt service payments by the country acted as a disincentive to the growth of output. Even though not significantly, they negatively affect the GDP. The negative effect was only reversed after about four years of receipt of the borrowed funds, when these funds were found to contribute significantly to output growth.

Keywords

St. Louis Model, Output-debt Model, Sub-saharan African Debt Ratios, Nigerian Total External Debt Ratio
User
Notifications

  • Akaike, H (1973), Information Theory and the Extension of the Maximum Likelihood Principle in Proceeding of the Second International Symposium on Information Theory, in B.N. Petrov and F. Csaki (Eds), Budapest, pp. 267-81.

  • Anyafo, A M O (1994), The Impact of External Debt on the Nigerian Economy, Unpublished Ph.D. Dissertation, University of Nigeria, Nsukka.

  • Batten, Dallas S and R W Hafer (1983), The Relative Impact of Monetary and Fiscal Actions on Economic Activity: A Cross- Country Comparison, Review, Federal Reserve Bank of St. Louis 83(1): 1-10.

  • Bullow, J and Rogoff, K (1990), Cleaning up Third World debt Without Getting Taken to the Cleaners, Journal of Economic Perspectives 4(1): 31-42.

  • Carlson, K M (1978), Does the St. Louis Equation Now Believe in Fiscal Policy? Review, Federal Reserve Bank of St. Louis 60(2): 17.

  • Central Bank of Nigeria (2001), Annual Reports and Statement of Accounts, CBN Press, Abuja.

  • Chowdhury, K (1994), A Structural Analysis of External Debt and Economic Growth: Some Evidence from Selected Countries in Asia and the Pacific, Applied Economics 26: 1121- 1131.

  • Dastoor, N K (1983), Some Aspects of Testing Non-nested Hypothesis, Journal of Econometrics 21: 213-28.

  • Davidson, R and J G Mackinnon (1981), Several Tests for Model Specification in the Presence of Alternative Hypothesis, Econometrica 49: 781-793.

  • Elbadawi, I, Benno Ndulu and Ndungu, N (1997), Debt Overhang and Economic Growth in Africa, in Haque and Kunbar, External Finance and the African Countries, The World Bank, Washington, DC.

  • Engle, R F, (1982), Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation, Econometrica 55: 1-87.

  • Ezirim, C B, C O Ofurum; and M I Muoghalu (2003), The Economic Impact of External Debt on an Emerging African Economy:

  • The Case of Nigeria, Academy of Economics and Finance Papers and Proceeding, February 12-15, pp. 122-129, Thirtieth Annual Meeting, Savannah Georgia.

  • Ezirim, C B, M I Mughalu and R Briggs, (2000), External Debt Overhang and Economic Performance of Nigeria: An Empirical Investigation, Nigerian Journal of Monetary Economics 3(5): 46-56.

  • Ezirim, C B, M I Muoghalu and U Elike (2004), External Indebtedness and the Economies of Less Developed Countries: Econometric Extension Drawing Empirical Evidence from Nigeria, Paper Presented at the 11th Annual Meeting of the American Society of Business and Behavioural Sciences at Boardwalk Hotel and Casino, Las Vegas.

  • Federal Reserve Bank of St. Louis (1982), Revised Form of St. Louis Model, Review, Federal Reserve Bank of St. Louis, May, P. 14.

  • Fisher, G R and M McAleer (1981), Alternative Procedures and Associated Tests of Significance for Non-Nested Hypotheses, Journal of Econometrics 16: 103-19.

  • Geiger, L T ( 1990), Debt and Economic Development in Latin America, The Journal of Developing Areas 24: 181-194.

  • Ghebreyesus, G S (2001), Debt Financing and Economic Performance of Severely Indebted Low-Income Countries, February, pp. 339-347,

  • Academy of Economics and Finance Papers and Proceedings, Twenty-Eight Annual Meeting Biloxi, Mississippi.

  • Graner, C W J and P Newbold (1974), Spurious Regressions in Econometrics, Journal of Econometrics 2(2): 111-120.

  • Gujarati, D (1999), Essentials of Econometrics (2ed), The McGraw-Hill Companies Inc., Boston.

  • Gujarati, D N (1995), Basic Econometrics (3ed), McGraw-Hill Inc., New York.

  • Gulgamov, R, Y Fayzullayev, and L Vahidova (2001), Adaptation of Debt Blok RMSM-X for Efficient External Debt Management in Uzbekistan, CER-ESCAP Sub-regional Seminar on the theme: Macroeconomic Policy Analysis and Modelling in the Economies of Central Asia, 20-22 June.

  • Hafer, R W (1982), The Role of Fiscal Policy in the St. Louis Equation, Review, Federal Reserve Bank of St. Louis, January, pp. 17-22.

  • Hagen, A, G Kleta, G Ghebreysus and M Cadet (2003), The Impact of International Loans on the Economic Growth of Highly Indebted Poor Countries: Empirical Investigation, February 12-15, pp. 199-209, Academy of Economics and Finance Papers and Proceedings, Thirtieth Annual Meeting, Savannah Georgia.

  • Ikporukpo, C O (1997), Political Economy at the International Arena: Africa's Debt Problem and the Environmental Crisis, Journal of Economic Management 4(2): 83-101.

  • Iyioha, M A (1997), An Econometric Study of Debt Overhang Debt Reduction, Investment and Economic Growth in Nigeria, NCEMA Monograph Series: No. 8, National Centre for Economic Management and Administration, Ibadan.

  • Jarque, C M and A K Bera (1980), Efficient Tests for Normality, Homoscedasticity and Serial Independence of Regression Residuals, Economics Letters 6: 255-9.

  • Kumari, Pushpa (1996), External Debt, Foreign Exchange Constraint and Economic Growth in Developing Countries, Finance India X(2): 394-396.

  • Levy, A and Chowdhury, K (1993), An Integrative Analysis of External Debt, Capital Accumulation and Production in Latin America, Asia-Pacific and Sub-Saharan Africa, Journal of Economics and Finance 17(3): 105-119.

  • (1996), Foreign Exchange, Exchange Rate Policy and External Debt Management, National Centre for Economic Management and Administration, Ibadan.

  • Olgun, H Disbudak, U.and Okem, G. (1998), Macroeconomic Interactions among Capital Inflows, Debt Servicing and Growth, Paper Presented in Middle East Technical University (METU) II Economic Conference, Ankara.

  • Pesaran, B (1988), Exact Maximum Likelihood Estimation of Regression Models with Invertible General Order Moving Disturbances, National Institute of Economic and Social Research, Discussion Paper, No. 136.

  • Pesaran, M H (1981), Diagnostic Testing and Exact Maximum Likelihood Estimation of Dynamic Models, in Proceedings of the Econometric Society European Meeting, 1979, Selected Econometric Papers in Memory of Stefan Valvanis, ed. E.G. Charatsis, North-Holland, Amsterdam, pp. 63-87.

  • Pesaran, M H (1982b), Comparison of Local Power of Alternative Tests of Non-Nested Regression Models, Econometrica 50: 1287- 305.

  • Pesaran, M H (1987b), ‘Global and Partial Non-Nested Hypotheses and Asymptotic Local Power' , Econometric Theory 3: 69-97.

  • Pesaran, M H, and B Pesaran (1997), Working in Microfit 4.0: An Interactive Econometric Analysis, Oxford University Press, Oxford.

  • Rockerbie, D W (1994), Did Debt Crisis Cause the Investment Crisis? Further Evidence, Applied Economics 26: 731-738.

  • Savvides, A (1992), Investment Slowdown in Developing Countries during the 1980s: Debt Overhang or Foreign Capital Inflows, Kyklos 45(3): 363-378.

  • Sawada, Y (1994), Are the Heavily Indebted Countries Solvent? Tests of Inter Temporal Borrowing Constraints, Journal of Development Economics 45: 325-337.

  • UNECA (1998), The Dynamic Impact of External Debt Accumulation on Private Investment and Growth in Africa, UNECA Working Paper Series.

  • Warner, A M (1992), “Did the Debt Crisis Cause the Investment Crisis? Quarterly Journal of Economics CVLL(4).

  • World Bank (1989), Sub-Saharan: Africa: From Crisis to Sustainable Growth, World Bank, Washington.

  • World Bank (1999), Global Development Finance 1999, World Bank, Washington DC.


Abstract Views: 261

PDF Views: 1




  • Output-Debt Relation in an Emerging Economy

Abstract Views: 261  |  PDF Views: 1

Authors

Michael I Muoghalu
Kelce College of Business Pittsburg State University, Kansas, United States
Chinedu B Ezirim
Dean, Faculty of Management Sciences University of Port Harcourt, Port Harcourt, Nigeria

Abstract


The relationship between aggregate output and external indebtedness of a typical African economy (Nigeria) using the St. Louis Modeling technique is investigated in this study. Contrary to critics, the St. Louis Modeling approach was found to be effective in explaining the relationships between the chosen phenomena in a typical African economy. It was also found that the total debt stock reserves had immense potentials to affect the GDP of Nigeria positively and significantly. The full influence of such external capital was felt in the third and fourth year of the life of such debts. The results also indicated that huge debt service payments by the country acted as a disincentive to the growth of output. Even though not significantly, they negatively affect the GDP. The negative effect was only reversed after about four years of receipt of the borrowed funds, when these funds were found to contribute significantly to output growth.

Keywords


St. Louis Model, Output-debt Model, Sub-saharan African Debt Ratios, Nigerian Total External Debt Ratio

References