The Impact of Foreign Aid on the Economic Growth of Nigeria

Abstract

The importance of aid to stimulate growth has been an issue in the research literature and largely unsettled. This paper examines the impact of aid on economic growth and builds on existing literature relative to the effect of aid proxies such as foreign aid, foreign direct investment and also domestic investment for a period of 57 years i.e. 1960 to 2016. It conducts an error correction method of analysis and observe that foreign aid was statistically significant to economic growth. This study affirms that the more aid the country gets, the more she is able to impact growth of the populace. The research does not have evidence to support the postulation as regards the absorptive capacity because the coefficient was negative though significant while that of aid was positive and equally significant.

The paper also observes that Domestic Investment and Foreign Direct Investment were also positive and significant to economic growth of Nigeria. This implies that the more the investments from within and outside Nigeria, the more the GDP increases, the increase in GDP also leads to an increase in the growth rate of GDP (GRGDP).