Output-Debt Relation in an Emerging Economy

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.