FOREIGN AID INFLOWS ON ECONOMIC DEVELOPMENT IN NIGERIA

ABSTRACT

This study examined the impact of foreign aid on economic development in Nigeria (with growth as a proxy for development) for the period 1983-2021 using co-integration and ECM methodology. Prior to ECM estimation, basic preliminary tests such as correlation analysis, unit root test and cointegration tests were performed. From the ECM estimation output, it was discovered that foreign aid considerably and favorably influences economic growth. The statistically significant error correction term had a negative sign with about 45 percent speed of adjustment. The causal relationship of variables in the model was determined using granger causality test while the structural stability of the model was determined and affirmed using cumulative sum of recursive residuals (CUSUM). Histogram normality test affirm the residual normality status. BreuschGodfrey (B-G) serial correlation shows that there is no problem of serial correlation while Breusch-Pagan-Godfrey employed for heteroscedasticity shows that there is no case of heteroscedastity in the model. According to the empirical findings, it was advised that policymakers take advantage of the benefits that foreign assistance inflow has on the Nigerian economy by making efforts towards attracting more foreign aid into the economy.