IMPACT OF FOREIGN AID INFLOWS ON ECONOMIC DEVELOPMENT: EVIDENCE FROM 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 1981-2021 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 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 Breusch-Pagan-Godfrey employed for heteroscedasticity shows that there is no case of heteroscedastity in the model. Based on the empirical findings it was recommended that policy makers should leverage on the positive impact foreign aid inflow has on the Nigeria economy by making efforts towards attracting more foreign aid into the economy.

Keywords: Foreign aid inflows, Economic Growth, Nigeria.