Global Journal of Human Social Science, E: Economics, Volume 21 Issue 4

stood at 33.11% in 2018 (below the threshold), it appears that external debt has not yet hampered economic performance in the ECOWAS region. The study however, noted a need for caution given the fast rate of increase (25% in six years) of external debt accumulation in the region. II. S tatement of the P roblem It is largely documented that countries appetite for debt has continually increased pushing up individual countries debt to GDP ratio across board. The structure of these acquired debts range from domestic instruments to foreign instruments. With regards to how these two wide instruments affect economic growth and economic development is a constant point of divergence for researchers. This paper seeks to review insights drawn from African and Asian contexts so as to establish a concrete perspective on matter of debt instruments. generally attract higher interests this means that the financiers in the domestic markets make more while dealing with the government. This can spur growth since they will be making more, the levels of consumption is also expected to increase due to the increased incomes. III. T heoretical R eview: D ebt O verhang This theory was propounded by (Myers, 1977). The debt overhang theory is based on the premise that if the total amount of debt exceeds the country’s repayment ability in the future, then the expected debt service of that country will be an increasing function of its output level. This implies that part of the returns gained from investing in the domestic market is taken by the foreign creditors thus discouraging domestic investments (Claessens et al. 1996). In such a situation the indebted country is left with a small proportion of any increases in output and exports because part of the proceeds is used to service external debt. The theory postulates that reducing debt obligation lead to a rise in investment and repayment capacity. When this happens, the outstanding debt is more likely to be repaid therefore reducing chances of debt default. Similarly when the effect is strong, the indebted country is said to be on the wrong side of the debt Laffer curve. Here debt Laffer describes the relationship between the level of debt and the country’s repayment ability which implies that there is a maximum at which accumulation of debt promotes growth (Elbadawi et al. 1996). Therefore the debt overhang hypothesis predicts that if there is likelihood that in future, debt will be larger than the country’s repayment ability, then the cost of servicing the debt will depress further domestic and foreign investment (Krugman, 1988), (Sachs, 1990), (Karafat, 2002). IV. C onceptual F ramework Independent Variables Dependent Variable Figure 1 a) Research Design So as to be able to capture and explain changes that occur overtime, longitudinal design was best suited for the study. b) Study Area This study utilized data collected over a period of two decades within reputable and verifiable statistics Volume XXI Issue IV Version I 44 ( E ) Global Journal of Human Social Science - Year 2021 © 2021 Global Journals Domestic or Foreign Debt ? A Choice of no Wrong Selection Domestic Debt • Central Bank Overdrafts Economic Growth • Gross Domestic Savings Foreign Debt • Bilateral Debt