Foreign Aid and Economic Growth: Empirical Evidence from Nigeria

Abstract

This study explored the relationship between foreign aid and economic growth in Nigeria from 1984 to 2017. The Autoregressive Distributed Lag Bounds method to cointegration was employed for this study. The results revealed that foreign aid did not contribute to economic growth in Nigeria. Also, the macroeconomic policy environment did not contribute to economic growth in both the short-run and long-run. Furthermore, the results revealed that the impact of foreign aid on economic growth in Nigeria was contingent on the quality of the macroeconomic policy environment. Hence, the claim that the effectiveness of aid is dependent on the q policy environment was valid for Nigeria. The study, therefore, recommends that the policymakers of the government should put in place a sound macroeconomic policy environment that is stable to stimulate domestic saving and ensure the effective utilization of foreign aid. Besides, there is a need for the diversification of the economy through viable alternatives such as agriculture, industrialization and trade to lessen heavy reliance on foreign aid as a major means of stimulating economic growth. Furthermore, the Economic and Financial Crimes Commission and Independent Corrupt Practices and other Related Offences Commission, established to fight corruption should be effective in their job and convince development partners and other aid donors that it is no longer business as usual for those that divert public resources including foreign aid funds for personal gains and the government should provide incentives to private investors and good enabling environment for the thriving of private businesses.