The Impact of Aid and Macroeconomic Policy on Growth in Nigeria: A Bounds Testing Approach

Abstract

This paper explores the impact of aid and macroeconomic policy on growth with Nigeria as a case study. Given its limited use in the aid efficiency literature on Nigeria, the autoregressive distributed lag (ARDL) model was applied in this study for time series data covering 44 years (1970-2014) in an attempt to expand the use of this approach and to check if a similar (negative) relationship is found between aid and growth. The results showed a positive correlation i.e. aid supports growth in Nigeria in the long-term. The other variables identified above and trends such as labour force and technological change were also found to be positive towards economic growth in the long-term, though governance showed an insignificant relationship. In the short-term, investment and policy were found to have a negative correlation on growth. More data on governance (before 1996) could be applied to expand the findings of this study and other measures of macroeconomic policy could be used to test if a similar result is obtained as principal component analysis was applied in this case. Given our findings, this paper recommends that the government of Nigeria should prioritize aid since it has been empirically found to support growth. Contribution/ Originality: This paper uses the endogenous growth theory taking into account the role of macroeconomic policy and governance to test the effectiveness of aid on growth in Nigeria which no other research has done.

Drivers of unemployment intensity in sub-Saharan Africa: do government intervention and natural resources matter?

“…As government spending increases, the unemployment level rises, this may be due to the structure and institutional setting of government instrument in SSA. This result is in consonance with the finding that suggested higher government size slowdown economic performance (Schaltegger and Torgler, 2006; Gregoriou and Ghosh, 2009; Usman et al. , 2011).…”

“…Studies have revealed economic advantages of increasing government size (Sedrakyan and Candamio, 2019; Gisore et al. , 2014; Patricia and Izuhukwu, 2013; Afonso and Jalles, 2011) but not without limitations (Usman et al. , 2011; Folster and Henrekson, 2001; Cashin, 1995; Gregoriou and Ghosh, 2009), especially in developing regions like Africa where limited tax base and macroeconomic uncertainty are the attributes of most economies.…”

“…This is related to the Okun's law that found a positive relationship between economic growth and employment generation. Although the drivers of economic development are not without government intervention, there are divergent views on the link of government intervention and the outcomes (Sedrakyan and Candamio, 2019;Gitana et al, 2018;Tanchev, 2016;Forte and Magazzino, 2016;Gisore et al, 2014;Usman et al, 2011). However, the underpinning theories emphasized government intervention as the key component for economic development, especially in mitigating the market mechanism crisis.…”

A Test of the Fiscal Theory of Price Level: Case Study of Nigeria

“…In particular, the developing countries including Nigeria have attracted special attention on fiscal view of inflation as a result of general notion that inefficient tax collection, political instability and limited access to external borrowing are predominant challenges of developing nations. These tend to reduce the relative cost of seigniorage and raise dependence on the inflation tax (Cukierman et al, 1992;Calvo and Vegh, 1999;Alesina and Drazen, 1991 ;Usman and Apinran, 2019). Empirically, the studies conducted among developing economies reveal existence of significant affiliation between inflation and fiscal deficit especially in high inflation countries (Metin, 1998;Domaç and Yücel, 2005;De Haan and Zelhorst, 1990).…”

The causal link between electricity transmission, distributional losses and economic growth in Ghana

“…Also, some studies have examined how macroeconomic factors such as economic growth, globalisation, ecological footprint, financial development and other influences electricity consumption (Rafindadi & Ozturk, 2016; Rafindadi & Usman, 2021). For example, Usman (2011) uses the Nonlinear ARDL model as an estimation strategy to examine the effects of economic growth, globalisation and ecological footprint on sustainable electricity consumption in Brazil. Findings from this study reveal that both positive and negative changes to economic growth, and globalisation increase electricity consumption.…”