IMPACT OF FOREIGN AID ON ECONOMIC GROWTH IN NIGERIA

Abstract

The recession of 2016 caused the overall real GDP to contract, and despite the efforts of the government through the Economic Recovery and Growth Plan (EGRP) launched in 2017, inflation, especially of food prices, has remained high. Unemployment worsened, low tax revenues and corruption coupled with fluctuating oil prices have left the Nigerian economy vulnerable to external shocks and high fiscal deficit, leading to more government borrowing and need for foreign aid interventions. Foreign aid comprises of various aid types and the effect of each on the economy may differ from the other. This study therefore disaggregated foreign aid into health aid, education aid, industry aid, and economic infrastructure aid to ascertain how each aid affected Nigeria’s economic growth from 1995 to 2017 using time series data. The Canonical Cointegrating Regression (CCR) procedure was employed to guarantee the robustness of the estimates. Empirical results indicate that within the study period, the impacts of education aid, health aid, industry aid, and economic infrastructure aid on economic growth varied. The study obtained evidence that only education aid drives economic growth significantly in Nigeria. However, the impact of health aid on growth was positive, its effect is insignificant; industry and economic infrastructure aid also impede economic growth. This led to the conclusion that foreign aid effect on the Nigerian economy depends on the aid type being considered.