Effect of External Borrowing and Foreign Aid on Economic Growth in Nigeria

Sebastine Ugochukwu Ugwuegbe, Okafor I.g and Christian Azino Akarogbe

International Journal of Academic Research in Business and Social Sciences, 2016, vol. 6, issue 4, 155-175

Abstract: This study however, examines the effect of external borrowing and foreign financial aid (foreign grant) in the form of official development assistance (ODA) on the growth of the Nigerian economy over a period of 34 years from 1980 to 2013. Annual time series data was obtained from the Central Bank of Nigeria (CBN) statistical bulletin and Organisation for Economic Cooperation and Development (OECD’s online). The study employed Ordinary Least Square technique (OLS) multiple regression model in determining the causal-effect between the variables under study. The test for Unit Root was conducted using Augmented Dickey-Fuller (ADF), Johansen Co-integration test was used to determine the long-runn relationship between the variables and Error Correction Method (ECM) was adopted to help us determine the speed of adjust. The results show that while external debt has a positive and significant effect on economic growth, foreign aid in conformity with the a priori expectation is positively related to GDP as well but statistically insignificant. This implies that foreign aid is beneficial to Nigeria but has not been much felt. Hence bulk of such funds (foreign aid) are been channelled to meeting recurrent or consumption expenditure needs of the country at the expense of productive investments.

Keywords: External debt; Official development assistance; Economic growth (search for similar items in EconPapers)
Date: 2016
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