Department of Finance

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Browsing Department of Finance by Subject "External borrowing"

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    External Borrowing, Tax Revenue, and Infrastructural Development in Nigeria
    (Lead City University, 2023-12) Martins Olajide ADEWINLE
    Economic growth, improved living conditions, and a higher human capital development index all depend on investments in infrastructure. Even though these infrastructures are regarded as essential services, most developing economies lack the financial resources to keep up with their expanding infrastructural investment requirements. Extant literature has mixed thoughts on these issues warranting the need to empirically examine the interaction between external borrowing and tax revenue on infrastructure development in Nigeria. This study adopted the ex-post facto research design to examine the interaction between External Borrowing (EB), Tax Revenue (TR), and Infrastructure Development (ID) from 1991-2022 and adopted the Auto-regressive Distributed Lag (ARDL) model framework as the analytical technique to substantiate the hypotheses formulated. The ARDL long-run result at 5% showed that in Nigeria; EB had a significant influence on Government Expenditure (GE) on road construction (ꞵ = -0.258, p= 0.050); EB has a significant effect on GE on agriculture (ꞵ = - 0.436, p= 0.003); EB has a significant effect on GE on transport and communication in Nigeria (ꞵ = -0.483, p= 0.000); EB has a significant effect on GE on social and community services (ꞵ = -0.213, p= 0.050); and TR interaction with EB to significantly influence ID (ꞵ = -0.312, p= 0.007). The study concluded that EB and TR when efficiently utilized play a complementary role in enhancing ID in Nigeria. The study recommended that the Federal government of Nigeria needs to be systematic in their sourcing for funding to provide infrastructure development facilities. While EB is critical, looking inwardly to create additional tax means needs to be looked into because it is cheaper and the burden imposed by exchange rate fluctuations and interest rate payment on EB is very high and is not sustainable in the light of Nigeria’s economic growth and development. Although funding can be obtained internally and externally to address developmental challenges, researchers seem to have mixed thoughts on funding domestic investment through external borrowing. Some scholars claim it is insufficient, while others affirm its adequacy. Those in support claim that external borrowing will only aid infrastructure development only if it is used wisely in productive activities. Those who advocate internal borrowing argue that it offers result to the economy and create a less international burden on the need to pay back in foreign currency. This debate suggests that there is no consistency in finance literature regarding the relevance of debt for infrastructural development and also, this study argues for tax revenue because of its relevance as a source of revenue to the federal government. The advocacy is that if the government channels appropriate strategy to tax creation and collection, it can lower government debt exposure and enhance the provision of infrastructural amenities in the country. The argument also needs to be examined empirically. Although several studies have positioned the value of debt to infrastructural development, likewise how tax revenue can bolster economic growth through infrastructural development in developed and emerging economies. On this strength, the study examines the effect of external borrowing, tax revenues, and infrastructural development in Nigeria. Keywords: External borrowing, Tax revenue, Infrastructure development, Nigeria, Economic growth, Social Services Word Count: 500