FOREIGN CAPITAL INFLOWS AND THE ECONOMY OF DEVELOPING ECONOMY

ABSTRACT

This study examined the impact of foreign capital (foreign aid) on the economy of Nigeria spanning the period 1981-2022 with co-integration and ECM methodolog. From the ECM estimation output, it was found that foreign aid positively and significantly impact on economic development. The error correction term was negatively signed and statistically significant 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. Breusch-Godfrey (B-G) serial correlation shows that there is no problem of serial correlation while BreuschPagan-Godfrey employed for heteroscedasticity shows that there is no case of heteroscedastity in the model. From the empirical analysis it was suggested amongst others that policy makers should continually encourage foreign aid inflow to complement domestic resources in the quest for sustainable economic growth in Nigeria. Keywords: Foreign aid inflows, Economic Growth, Nigeria.