Impact of foreign aid on Nigerian economy

Abstract

AbstractThe study critically assessed the impact of foreign aid on the Nigerian economy with a specific interest in official development assistance from 1980 to 2019. It employed the ARDL bounds testing approach to cointegration and finds a long-run relationship among the variables employed. Furthermore, the estimated results suggest that official development assistance as a form of foreign aid and credit extensions does not contribute to the progress of the Nigerian economy, it rather retards it. Also, the study concludes both the short and long run that the labor force contributes to economic progress in Nigeria, whereas gross capital formation just like foreign aid retards growth. The Granger causality test reveals no sign of either unidirectional or bidirectional causal relationship between official development assistance and economic growth in Nigeria. The study recommends that adequate support through credit extensions to SMEs should be fostered to strengthen domestic capital formation. The originality of this work lies in its rigorous analysis of the long-term impact of official development assistance on the Nigerian economy, employing the ARDL bounds testing approach. The findings challenge conventional wisdom and offer valuable insights into the dynamics of foreign aid and economic growth in Nigeria. However, this study has certain limitation. The study temporal scope spans from 1980 to 2019 due to limited data.

Keywords

• ODA
• foreign aid
• ARDL
• Nigerian economy
• labor force
• granger causality