ABSTRACT
This study investigated the influence of foreign assistance on the economic growth of developing nations, with a particular focus on Nigeria, utilizing annual time series data spanning from 1981 to 2021. The primary aim of this research was to assess the impact of foreign aid on the economic growth of Nigeria. The study employed the Augmented Dickey-Fuller (ADF) test to assess the stationary nature of the variables, which were found to be stationary after taking first differences. The Johansen co-integration technique was utilized to determine whether these stationary variables exhibit long-term co-integration and the Error Correction Model (ECM) was applied to correct any short-term imbalances. The findings from the tests for stationarity and diagnostic checks indicate that the model is adequately specified and suitable for policy analysis. The data used in this analysis were obtained from the publications of the Central Bank of Nigeria statistical bulletin and the World Development Indicators of the World Bank.
This study discovered that there exist a positive correlation between the past Real Gross Domestic Product (RGDP) and the present RGDP. However, the results of this study suggest that foreign aid and grants do not have a significant impact on economic growth. These findings align with the conclusions of Bagdigen and Cetintas (2003), who also observed no substantial link between foreign aid and grants and economic growth. Furthermore, this study identified a significant positive influence of the previous year's RGDP on the current year's RGDP in Nigeria.
Therefore, this study proposes that foreign aid should not be considered a replacement for effective economic policies. To attain long-term economic development, particularly in developing nations like Nigeria, it is imperative to adopt a wide range of economic improvements, including enhancing the business climate, curbing corruption, and making investments in education and infrastructure. While foreign aid can offer support in these endeavors, it should not be seen as a quick fix.
