Effect of External Debt on Economic Growth: Evidence from Nigeria Okoye Lawrence Uchenna Department of Banking and Finance, Covenant University Ota, Nigeria. E-mail: lawrence.okoye@covenantuniversity.edu.ng Modebe Nwanneka J. Department of Banking and Finance, University of Nigeria, Nsukka E-mail: modebenwanneka@gmail.com Erin Olayinka Adedayo Department of Accounting, Covenant University Ota, Nigeria Email: olayinka.erin@stu.cu.edu.ng Evbuomwan Grace O. Department of Banking and Finance, Covenant University Ota, Nigeria Email: grace.evbuomwan@cu.edu.ng Corresponding Author: lawrence.okoye@covenantuniversity.edu.ng Abstract The study seeks to determine the effect of external debt on economic growth in Nigeria. Specifically, the study examines whether external borrowings and its major determinants like exchange rate, gross fixed capital formation and inflation rate have supported the growth of the Nigerian economy. The parameters of the model were estimated using the ordinary least squares method. The robustness of the result was enhanced using the generalized least squares technique. The result shows evidence of significant positive correlation between economic growth and the explanatory variables namely external debt, exchange rate and inflation rate. A negative correlation was however observed between economic growth and gross fixed capital formation. The regression estimates for both the ordinary and generalized least squares tests show significant positive impact of external debt, exchange rate and inflation rate on economic growth. The results also show non-significant negative effect of gross fixed capital formation on economic growth. The study concludes the external debt has significantly promoted economic growth in Nigeria. Keywords: External debt, Economic growth, Exchange rate, Inflation rate, Gross fixed capital. Introduction Debt financing is an integral part of modern economies as developed and developing nations either borrow to drive the process of economic growth and development or to support existing level of economic activities. It is a government policy of stimulating the economy by deliberately budgeting an expenditure in excess of revenue (from taxes, royalties, and sundry sources) through injection of funds to stimulate or maintain the level of economic activities, the excess being financed by borrowing. Nwankwo (2011) posits that governments all over the world engage in borrowing but explains that while developing nations borrow to finance economic and social development projects, developed nations borrow primarily to keep the economy running and making progress. Sustainable Economic Growth, Education Excellence, and Innovation Management through Vision 2020 4046