European Scientific Journal July 2015 edition vol.11, No.19 ISSN: 1857 – 7881 (Print) e - ISSN 1857- 7431 185 EXTERNAL DEBT OR FOREIGN DIRECT INVESTMENT: WHICH HAS GREATER SIGNIFICANT ECONOMIC IMPACT ON NIGERIA? Bolanle Azeez, M.Sc Fapetu Oladapo, PhD Olufemi A. Aluko, B.Sc Department of Banking and Finance, Ekiti State University, Ado-Ekiti Abstract This study assesses the significant economic impact of external debt and foreign direct investment on the growth of Nigeria for a period stretching from 1990 to 2013. The model specifies gross domestic product (economic growth) as dependent on outstanding value of external debt and foreign direct investment inflows. Estimating the model using the error correction modelling approach, the findings show that external debt is negatively but insignificantly related to economic growth while foreign direct investment is also negatively but significantly related. Foreign direct investment is indicated to be significant for economic growth; therefore, inflows through foreign direct investment tend to have more impact on the Nigerian economy than inflows from external debt. Keywords: External Debt, Foreign Direct Investment, Gross Domestic Product, Dual-Gap Theory, Error Correction Modelling Introduction It is difficult for a developing country to support itself with only domestic financial resources because these resources are limited. The dual- gap framework identified the need for financial resources from foreign sources to augment available limited domestic financial resources in order to achieve sustainable economic growth in a country especially for a developing country. External (foreign) debt and foreign direct investment (FDI) are required by developing nations like Nigeria to attain the economic status that allows them to be relevant for their residents and to compete globally.