THE IMPACT OF FOREIGN AID ON THE NIGERIAN ECONOMY (1985-2019)

ABSTRACT

The empirical study examined foreign aid and economic growth in Nigeria (1985-2019). Secondary data on RGDP, being the dependent variable, was used as a proxy for economic growth. Official development assistance (ODA), capital expenditure (CEXP), foreign direct investment (FDI) and inflation (INFL) which represented the independent variables, were sourced mainly from CBN statistical bulletin and WDI sourced from the World Bank. In the course of the empirical investigation, various advanced econometric techniques like Augmented Dickey-Fuller Unit Root test, Johansen co-integration test, Error Correction Model test and diagnostic tests were employed and the results were revealed. The dependent and independent variables were all stationary at first difference. The result of the error correction model test indicated that ODA, CEXP, EXCR and INFL were statistically significant while FDI was found to be insignificant at 5% level of significance. ODA was found to have a positive and significant relationship with economic growth. The study concluded that the government should use the revenue accrued from foreign aid to develop major sectors of the economy such as the manufacturing sector and the agricultural sector. The government should not put too much reliance on foreign aid, instead more attention should be given to economic diversification.

Keywords: Official Development Assistance, Foreign Aid, Economic Growth.