Journal Press India^®

Author Details ( * ) denotes Corresponding author

The need to finance budget gaps often compel nations to seek external sources of fund with the intention that such funds would be applied on projects that will enable her deepen the economy. Thus, the issue of external debt and economic development has attracted a wide discourse among researchers, analysts, practitioners etc, with the main intension to ascertain how the nation has indeed applied such funds and the effect. Extant studies have revealed conflicting results on the interaction between economic development dynamics and external debt fundamentals. Also, few of these studies have attempted to consider the linkage between the human factor matrix and external debt financing. It is against this backdrop that this study sought to examine the impact of increase in external debt stock and its servicing on human capital development. Four hypotheses were formulated and tested at 5% level of significance. Ex-post facto research design was adopted and time series data spanning 30 years (1986-2015) were processed using the models earlier formulated. Ordinary Least Square (OLS) regression technique was used to test the hypotheses. The study found that both external debt stock and external debt servicing had significant negative effect on human capital development; external debt stock borrowed from Paris club and multilateral creditors had insignificant negative effect; those borrowed from London club had insignificant positive effect while those borrowed from bilateral creditors had significant positive effect. On debt servicing, all the creditors showed insignificant positive effect except London club that had significant positive effect. The study concluded that nations could finance their budget deficits with external funds but should ensure that such funds are applied on priority projects that have the capacity to deepen the economy and improve the well fair of her citizens. Among other recommendations is the fact that both the state and federal government should create investment window that will significantly reduce the level of unemployment prevalent in the country and also embark on industrial revolution that will greatly widen the nation’s revenue base and reduce her reliance on oil and gas as the main source of revenue.

Keywords

External Debt; Human Development Index; Debt Servicing; Foreign Exchange Rate; Inflation Rate.

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