The Linkage between Foreign Aid and Economic Growth in Nigeria

Abstract

Abstract. Nigeria has benefited immensely from foreign aid because she has been identified among the poorest nations in the world inspite of her abundant natural and human resources. Despite the increased flow of foreign aids into Nigeria and the enormous potential of foreign aid in accelerating economic growth through bridging of the savings and foreign exchange gaps, Nigeria economy is still characterized by low level of income, high level of unemployment, very low industrial capacity utilization, and high poverty level. This has informed the need to embark on the present study with a view to analysing the effects of foreign aid on the economic growth of Nigeria. The study employed econometric techniques such as; Ordinary Least Square, Augmented Dickey Fuller (ADF) test, Johansen Cointegration test using data spanning from 1981-2012. The result shows a negative and non- significant relationship between foreign aid to Nigeria and GDP. The study therefore suggests the implementation of political, economic and institutional reforms that will address the problem of pervasive corruption in the country, improve the quality of governance, ensure that foreign aid flows are invested into developmental projects that will boost the nations GDP and reduce the level of poverty in the country.