External Debt and Economic Growth in Niger: a Vector Autoregression and Variance Decomposition Analysis
DOI:
https://doi.org/10.2478/eb-2021-0001Keywords:
Economic growth, External debt, Niger, Variance decomposition (VD), Vector autoregression (VAR)Abstract
In the quest for quick economic development, many Sub Saharan African (SSA) countries borrow money to finance their budget deficits and vital infrastructure. Niger has seen its external debt increase year after year without really reaching economic development. This study uses a vector autoregressive (VAR) model to investigate the relation linking external debt and economic growth in Niger and variance decomposition forecast to verify if there is any significant impact from shocks for a period of 5 years in the future. The study utilises time series yearly data provided by the World Bank for the period covering 1970–2019. The empirical results reveal no long-run relationship between economic growth, external debt and government spending in Niger. The results also indicated that, on average ceteris paribus, the past realisation of economic growth is related to an increase of 97.75 % in economic growth, while the past realisation of external debt and government spending is associated with an increase of 83.77 % and 79.70 % in external debt and government spending, respectively. The results furthermore show that economic growth has a statistically significant causal effect on government spending in the short term. One percentage increase in economic growth accounts for an increase of 35.28 % in government spending on average ceteris paribus. The variance decomposition forecast reveals that economic growth has a significant influence on predicting government spending in the future.References
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Ayadi, F. O., Chatterjee, A., & Obi, C. P. (2000). A vector autoregressive analysis of an oildependent emerging economy – Nigeria. Opec review, 24(4), 329–349. https://doi.org/10.1111/1468-0076.00087
Campbell, J. Y. (1991). A Variance Decomposition for Stock Returns. The Economic Journal, 101(405), 157–179. https://doi.org/10.2307/2233809
Çifligu, E. P. (2018). The Relationship between Public Debt and Economic Growth in Albania and Other Countries. Academic Journal of Interdisciplinary Studies, 7(3), 95–102. https://doi.org/10.2478/ajis-2018-0061
Cui, H., Wu, R., & Zhao, T. (2018). Dynamic Decomposition Analysis and Forecasting of Energy Consumption in Shanxi Province Based on VAR and GM (1, 1) Models. Hindawi Mathematical Problems in Engineering, 2018, 4234206. https://doi.org/10.1155/2018/4234206
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. Journal of the American Statistical Association, 74(366), 427–431. https://doi.org/10.2307/2286348
Faraji, K., & Makame, A. S. (2013). Impact of External Debt on Economic Growth: A Case Study of Tanzania. Advances in Management & Applied Economics, 3(4), 59–82.
Hadhek, Z., & Mrad, F. (2014). Debt and Economic Growth. International Journal of Economics and Financial Issues, 4(2), 440–448.
Hammed, O. M., Suraya, M., Suraya, I., Zelhuda, S., & Norfadzilah, R. (2018). Does External Debt Cause Economic Growth? An Experience from ECOWAS Member Countries. International Journal of Academic Research in Business and Social Sciences, 8(11), 1256–1264. https://doi.org/10.6007/IJARBSS/v8-i11/5167
Lütkepohl, H. (2000). Impulse response function. In Macroeconometrics and Time Series Analysis. London: Palgrave Macmillan. (pp.145–150). https://doi.org/10.1057/9780230280830
Ma’ale, S. A.-D. (2019). The Impact of Public Debt and Public Investment on Economic Growth in Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 9(2), 149–157.
Mbah, S. A., Umunna, G., & Agu, O. C. (2016). Impact of External Debt on Economic Growth in Nigeria: An ARDL Bound Testing Approach. Proceedings of the Fifth Middle East Conference on Global Business, Economics, Finance and Banking, (pp. 1–18). Dubai.
McKenzie, M. A., Goodwin, H. L., & Carreira, R. I. (2009). Alternative Model Selection Using Forecast. Journal of Agricultural and Applied Economics, 41(1), 227–240.
Moriyama, T., Nishimura, K., Nagatani, T., & Maeda, S. (2018). Causal Relationship Analysis Method using Forecast Error Variance Decomposition based on Sensor Common Frequency for Exhaust-Gas Fluctuation Analysis. Journal of the Japan Society for Precision Engineering, 84(5), 454–462. https://doi.org/10.2493/jjspe.84.454
Olusegun, O. A. (2008). Oil Price Shocks and the Nigerian Economy: A Forecast Error Variance Decomposition Analysis. Journal of Economic Theory, 2(4), 124–130.
Onakoya, A. B., & Ogunade, A. O. (2017). External Debt and Nigerian Economic Growth Connection: Evidence from Autoregressive Distributed Lag Approach. Journal of Economics and Development Studies, 5(1), 66–78. https://doi.org/10.15640/jeds.v5n1a7
Pesaran, H., Shin, Y., & Smith, J. R. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
Phillips, P. C. P. (1998). Impulse response and forecast error variance asymptotics in nonstationary VARs. Journal of Econometrics, 83, 21–56. https://doi.org/10.1016/S0304-4076(97)00064-X
Shkolnyk, I., & Koilo, V. (2018). The relationship between external debt and economic growth: empirical evidence from Ukraine and other emerging economies. Investment Management and Financial Innovations, 15(1), 387–400. https://doi.org/10.21511/imfi.15(1).2018.32
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24.02.2021
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Copyright (c) 2021 Issoufou Oumarou, published by Sciendo
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Oumarou, I. (2021). External Debt and Economic Growth in Niger: a Vector Autoregression and Variance Decomposition Analysis. Economics and Business, 35, 1-13. https://doi.org/10.2478/eb-2021-0001
