Heterogeneous effect of external debt on capital flight: Evidence from lower-middle-income countries

An excessive increase in public debt characterizes the contemporary development of the global economic and financial system. The paper aims to examine the short- and long-run impact of state debt on economic growth in Nigeria. The model was estimated using an autoregressive distributed lag (ARDL) bounds testing method to co-integration for the long-run investigation. At the same time, the contemporaneous dynamics were explored using an unrestricted error correction model. The data were collected from the Central Bank of Nigeria’s statistical bulletins and annual reports, and it spanned the years from 1990 to 2020. The study uncovers evidence of a long-term link between the study variables. In addition, the study finds that all the explanatory is statistically significant. Specifically, economic growth is significant and negatively responsive to changes in external debt by 0.19% and debt servicing by 0.07%, contrary to its positive response to changes in domestic debt and exchange rate by 0.27% and 0.18%, respectively. The paper, therefore, recommends that government may consider more domestic borrowings to foreign borrowings that should only be resorted to when it is indispensable. Moreover, the government should also strive to balance loan servicing and the economic sustainability.

Type of the article: Research Article

Abstract
Financial globalization promotes investment inflows, financial market development, and deeper integration into the international economic system, yet its impact on economic growth remains ambiguous. The study aims to identify and quantify the influence of key financial globalization factors – direct and portfolio investments, external debt, and international reserves – on the economic growth of selected countries, with a focus on Ukraine’s integration into the global financial space. Statistical analysis was employed to summarize financial globalization indicators, correlation analysis to assess the strength and direction of relationships between these factors and GDP growth, regression modeling to estimate the impact of each factor on economic performance, and comparative analysis to contrast Ukraine’s trends with those of European countries. The results revealed that in developed economies (Germany, the UK), high FDI levels (5-8% of GDP) and stable reserves (over 25% of imports) support sustainable growth. In transition economies (Poland, Romania), financial globalization contributes to modernization but increases volatility due to reliance on external investors. For Ukraine, the impact remains limited: FDI averaged 3-4% of GDP, external debt exceeded 80% of GDP, and international reserves fluctuated around USD 25-30 billion, insufficient for long-term macroeconomic stability. Correlation between FDI and GDP (r = 0.62) indicates a moderate positive link, while portfolio investment showed a weak and unstable connection (r = 0.28). Overall, financial globalization offers opportunities for capital inflows and technological transfer, but its benefits for Ukraine depend on strengthening institutional capacity, financial resilience, and a predictable regulatory environment to ensure it serves as a driver of sustainable development rather than a source of risk.

Acknowledgment
This research is carried out within the framework of the scientific project “Model of the post-war development of credit institutions based on artificial intelligence: customization of financial services and prudent supervision” with the support of the Ministry of Education and Science of Ukraine, State registration No. 0124u000810 (Order No. 1569 dated December 27, 2023).

According to reports data of the International Institute of Management Development (IMD) and World Economic Forum (WEF), contries’ competitiveness tendencies were defined: rate of global competitiveness index remains lower than the rate, achieved before the global financial and economic crisis, non-linear distribution of benefits from economic growth between EU countries, Ukrainian rating falling by macroeconomic stability by 21 points in 2017 in comparison with 2018. It is not unexpected that realization of countries’ policy concerning their competitiveness growth requires some cost. Thus, author supposes that it is important to study key aspects of state finance, which can have great impact on the international competitiveness and solve the country’s macroeconomic stability problem. This paper shows results of author’s own research, carried out using methodic tools of scientists Ahvaz Shahid Chamran University, Ahvaz, Iran Abdolmajid Ahangari and Aziz Arman. It is based on evaluation of instability time rows of four economic variables of inflation (TINF), the ratio of budget deficit on growth domestic product (GDP) (TBD), foreign debt on GDP (TFD) and exchange rate deviation from the previous period (TRO) and calculation of macroeconomic instability index on their base MII_tn. Research showed that all variables of macroeconomic instability index MII_tn have a positive correlation; therefore, subindex of inflation rate instability and subindex of exchange rate to the previous period have the largest impact on the macroeconomic instability index MII_tn .