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This paper investigates the impact of the huge external debt, with its servicing requirements, on economic growth of the Nigerian and South African economies. The external debts of Nigeria and South Africa are analyzed in a new context utilizing traditional, but innovative, models and econometric techniques. The Neoclassical growth model, which incorporates external sector, debt indicators, and some macroeconomic variables, is employed in this study to explore a linear, as well as non-linear, effect of debt on growth and investment. Both ordinary least squares (OLS) and generalized least squares (GLS) are employed in the analysis. Among other test results, the negative impact of debt (and its servicing requirements) on growth is confirmed in Nigeria and South Africa. However, South Africa performs better than Nigeria in the application of external loans to promote growth. In addition, external debt contributes positively to growth up to a point after which its contribution becomes negative in Nigeria (reflecting the presence of non-linearity effects).
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