Foreign Aid and Economic Growth: Empirical Evidence from Nigeria

Abstract

This study explored the relationship between foreign aid and economic growth in Nigeria from 1984 to 2017. The Autoregressive Distributed Lag Bounds method to cointegration was employed for this study. The results revealed that foreign aid did not contribute to economic growth in Nigeria. Also, the macroeconomic policy environment did not contribute to economic growth in both the short-run and long-run. Furthermore, the results revealed that the impact of foreign aid on economic growth in Nigeria was contingent on the quality of the macroeconomic policy environment. Hence, the claim that the effectiveness of aid is dependent on the q policy environment was valid for Nigeria. The study, therefore, recommends that the policymakers of the government should put in place a sound macroeconomic policy environment that is stable to stimulate domestic saving and ensure the effective utilization of foreign aid. Besides, there is a need for the diversification of the economy through viable alternatives such as agriculture, industrialization and trade to lessen heavy reliance on foreign aid as a major means of stimulating economic growth. Furthermore, the Economic and Financial Crimes Commission and Independent Corrupt Practices and other Related Offences Commission, established to fight corruption should be effective in their job and convince development partners and other aid donors that it is no longer business as usual for those that divert public resources including foreign aid funds for personal gains and the government should provide incentives to private investors and good enabling environment for the thriving of private businesses.

Foreign Aid in Nigeria: A Departure From Economic Development Impact to Social Development Impact

“…Also, Odusanya et al (2011) contend slightly differently that foreign aid has impacted on Nigerian economic development but it has not reflected qualitatively on the well-being on citizens of Nigeria. A further attempt at narrowing down the discourse to Nigeria is made by Duru et al (2020) while maintaining that Nigeria's receipt of various kinds of foreign aid has not had positive impact as many Nigerian citizens wallow in abject poverty, unemployment and insecurity.…”

Sectoral Allocation of Foreign Aids and Poverty Alleviation in Nigeria, 2010-2020

“…There is consensus among scholars that foreign aids have become imperative in global affairs, particularly in developing countries like Nigeria where lack of capacity and financial resources to fund development programmes remains a perennial challenge for economic development and in pulling citizens out of the vicissitude of poverty. On the other hand, success of the sustainable development goal agenda of the United Nations in Africa, particularly the first goal on ending poverty, depends on the effectiveness of foreign aids (Duru et al, 2020;Pacifique, 2017;United Nations, 2015). That is why elimination of poverty is currently a key concern of all those interested in the development of poor countries to the extent that in official discourse by the World Bank and major donors, for instance, almost every policy is presently assessed in relation to its impact on poverty (Ruggeri et al, 2003).…”