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

time thus avoiding delayed repayment `costs. This finding has a bearing on borrowing implementation policy that ought to match borrowed money and targeted investments required to reduce chances of penalties associated with delayed debt servicing. This will in turn enhance credit rating hence reduce cost of borrowing consequently narrowing the interest rate spread. (Muhammad, Muhammad & Tariq, 2010) in their study in Pakistan on impact of domestic debt on economic growth found that there exists a positive relationship between domestic debt and economic growth. (Putunoi & Mutuku, 2013) also found existence of a positive relationship between public debt and economic growth in their study of domestic debt in Kenya. g) Foreign Debt (F.D) and Economic Growth (E.G) The sixth objective of the study was to determine effect of bilateral debt on economic growth. The null hypothesis was therefore stated as follows; H 0 : Foreign Debt has no significant effect on Economic Growth. The analysis on Table 4.6b indicates that the regression weight of F.D on E.G was 0.55 (p = 0.000 < 0.05) indicating existence of a positive and significant effect of bilateral debt on economic growth and this therefore led to the rejection of the null hypothesis. This means that a unit increase in F.D enhances E.G by 0.55. This result could be attributed to economic discipline (management efficiency) in the application of debt as contained in the debt agreement between the parties hence improved debt rating. This in turn enables the government to access cheaper credit in future. This finding has a policy implication with respect to continue having a legal limit on size/volume of bilateral debt to avoid situation of excess debt repayment installments (Principal, interest and associated penalties) that consequently reduces savings necessary to catalyze economic development. These findings affirm use of Debt Overhang Theory. These findings contradicts the study by (Pattillo, Poirson, & Ricci, 2004) who looked at the channels through which external debt affects growth. They found out that there exists a strong negative relationship between external debt and economic growth. In their study that looked at the impact of external debt and debt servicing on poverty reduction in Nigeria, (Oloruntoba, Apollos & Emerah, 2013) also contradicts the findings of this current study since they indicated that there exists an inverse relationship between external debt and economic growth. VI. C onclusion a) Domestic Debt (D.D) and Economic Growth (E.G) The first objective of the study was to establish the effect of D.D on E.G. The null hypothesis was therefore stated as follows; H 0 : Domestic Debt has no significant effect on Economic Growth. The findings show existence of a positive and significant effect of D.D on E.G and hence the null hypothesis was rejected. D.D is seen to stimulate economic growth as evidence by the positive correlation as well as positive coefficient in the estimated model. This variable defies the expectations from the neoclassical theory since it shows that debt can be a tool to invoke economic growth. b) Foreign Debt (F.D) and Economic Growth (E.G) The second objective of the study was to determine effect of Foreign Debt on Economic Growth. The null hypothesis was therefore stated as follows; H 0 : Foreign Debt has no significant effect on Economic Growth. The analysis indicates existence of a positive and significant effect of bilateral debt on economic growth and this therefore led to the rejection of the null hypothesis. Bilateral debt was not in agreement with the neoclassical postulations since it indicated a positive interaction with economic growth. VII. R ecommendation Key establishments have it that as a country secures loans, feasibility has to be factored in to see the position in terms of debt repayment. Still to be considered is the function of the acquired debt and this should largely revolve around development projects to ensure sustainability of growth and development. Further if the development projects could also be income generating the better for the country since this will relieve undue and unnecessary pressures within the economy in search for funds to help off-set the loans. These consideration factors are a clear indication that frugality in cost-benefit analysis needs to occur and this could possible tame the global outage of debt appetite. The market from where the debt is drawn is of importance to the individual governments’ consideration since the outcomes have significant effects to both the market players and the countries at large. Domestic debts. R eferences R éférences R eferencias 1. Abbas, M. (2010) ‘The Role of Domestic Debt Markets in Economic Growth: An empirical investigation for low-income countries and emerging markets," IMF staff papers No.02/249, Washington: International Monetary Fund. 2. Addison, A. (1995) Economic Progress and Policy in Developing Countries. London. 3. Adofu & Abula, M. (2010). Domestic Debt and the Nigerian Economy. Current Research Journal of Economic Theory 2(1): 22-26, 2010 4. Aghion, P., and Durlauf, S. (2007) Handbook of Economic Growth. North-Holland: Elsevier. available Volume XXI Issue IV Version I 47 ( E ) Global Journal of Human Social Science - Year 2021 © 2021 Global Journals Domestic or Foreign Debt ? A Choice of no Wrong Selection on-line in http://www.nek.lu.se/publications/work pap/Papers/WP05_34.pdf