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Ongoing Debate Between Foreign Aid and Economic Growth in Nigeria: A Wavelet Analysis

Tomiwa Sunday Adebayo and Demet Beton Kalmaz

Social Science Quarterly, 2020, vol. 101, issue 5, 2032-2051

Abstract: This study aims to reexamine the interconnection between economic growth, foreign aid, trade, gross fixed capital formation, and inflation rate in one model for the case of Nigeria, which has not yet been analyzed utilizing the new econometric techniques, employing time series data covering the years between 1980 and 2018. No previous research has employed a wavelet coherence technique to gather information on the dynamic connection and/or causality between these economic indicators at dissimilar frequencies and various time frames. The main objectives are to address the questions: (a) Is there long‐run relationship between the indicators under consideration? (b) What are the main determinants of economic growth in the long run? (c) How are the indicators related at dissimilar frequencies and various time frames? The empirical findings confirm that (a) there is a long‐run relationship between the indicators under consideration; (b) in the long run, economic growth is influenced significantly by foreign aid, trade openness, gross fixed capital formation, and inflation rate; (c) the outcomes of the wavelet coherence technique give evidence to support the long‐run estimations of this study; and (d) the outcomes of wavelet coherence are supported by the Toda‐Yamamoto causality test results.

Date: 2020
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