Page 1 of 20
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 02 Issue 5
May 2016
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 127
Aid Effectiveness in Nigeria: A Long Range Perspective
Emmanuel O. Okon1, Ekere J. Daniel2 and D. Y. Lawal 3
1Department of Economics, Kogi State University, Anyigba, Kogi State, Nigeria.
E-mail: tonydom57@yahoo.com.
2Department of Economics, Akwa Ibom State University, Obio-Akpa Campus, Akwa Ibom
State, Nigeria. E-mail: ekeredaniel@yahoo.com.
3 Department of Economics, Kogi State University, Anyigba, Kogi State, Nigeria.
E-mail: dylawal@yahoo.com.
ABSTRACT
This study examines foreign aid
effectiveness in Nigeria from 1960 - 2013.
Regression equations were specified to
determine the factors that attract foreign aid
to Nigeria; the impact of foreign aid on
human development and per capita GDP in
Nigeria. Using 3SLS technique to estimate
the simultaneous equation model, the result
shows that human development index, per
capita GDP and trade openness are not
factors that attract foreign aid to Nigeria.
On the other hand, the political regime
index was shown to encourage foreign aid.
The study further shows that foreign aid has
impacted negatively on human development
and per capita GDP in Nigeria. Base on
the findings, donors must take steps to impro
ve foreign aid predictability in order to
reduce the uncertainty associated with
foreign aid flows and also attention must
paid to the needs and priorities of host
communities when development assistance
projects are executed.
Keywords: Foreign Aid, Overseas
Development Assistance, Economic growth
1.0 INTRODUCTION
The role of foreign aid in fostering
economic growth and development in poor
countries continues to be a subject of debate
among policy makers and researchers.
Earlier studies found the relationship
between aid and growth to be inconclusive
(Mosley, 1980 and Boone, 1994). Burnside
and Dollar (2000) discovered that aid has a
positive impact on growth in recipient
countries with good fiscal, monetary, and
trade policies. The important policy
recommendation of this, which has been
embraced by aid agencies, is that aid should
only be allocated to countries with a sound
policy environment. However, “the debate
about aid effectiveness is one where little is
settled” (Rajan, 2005).
On international comparison, Nigeria
ranks low among African countries.
Similarly, the country is least placed in
terms of per capita income, percentage of
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Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 02 Issue 5
May 2016
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 128
population living in poverty, life
expectancy, prevalence of AIDS, literacy,
infant mortality and human development
index, etc. In the last four decades, the
country has witnessed unpleasant growth
which could be said to the worst ever in the
world (Eregha, 2009). Foreign aid agencies
and international organization have actively
involved in the country as a show of
concern. Invariably, African
countries(including Nigeria) aid as
percentage of income is greater than other
developing countries and the continent
focuses greatly on programmes organized by
International Monetary Fund (Easterly,
2005).
This study provides a long-term
perspective on donor aid and economic
growth and development of Nigerian. This
article does not just add to the aid
effectiveness debate, it gives a better
understanding of the factors that explain the
allocation of aid to Nigeria in the first place;
it examines the relationship between donor
aid and human development in Nigeria; and
it investigates the impact of foreign
development assistance on national income
per capita in Nigeria. The remainder of the
study is organized as follows. Section two
reviews the literature. Section three contains
an overview of the structure of Nigerian
economy and inflows of aid to the economy,
while section four host the model
specification, data and technique of analysis.
Section five is the empirical result and
discussion of findings. Section six concludes
the study with summary and policy
recommendations.
2.0 LITERATURE REVIEW
The relationship between foreign aid
and economic growth has drawn great
attention for years, but the empirical results
are mixed. There is now a large literature on
the relationship between aid and growth. A
study conducted by McGillivray (2005)
demonstrates how aid to African countries
not only increases growth but also reduces
poverty. Furthermore, the author points out
the important fact that continuously growing
poverty, mainly in sub-Saharan African
countries, compromises the MDGs
(Millennium Development Goals) main
target of dropping the percentage of people
living in extreme poverty to half the 1990
level by 2015. His research econometrically
analyzes empirical, time series data for
1968-1999. The paper concludes that the
policy regimes of each country, such as
inflation and trade openness, influence the
amounts of aid received. Ouattara (2006)
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e-ISSN: 2395-0463
Volume 02 Issue 5
May 2016
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 129
analyzes the effects of aid flows on key
fiscal aggregates in Senegal. This paper
utilizes data over the period of 1970 – 2000
and primarily focuses on the interaction
between aid and debt. The author
determined three main outcomes of his
study. First, that a large portion of aid flows,
approximately 41%, are used to finance
Senegal’s debt and 20% of the government’s
resources are devoted to debt servicing.
Second, that the impact of aid flows on
domestic expenditures is statistically
insignificant, and third that debt servicing
has a significant negative effect on domestic
expenditure. As a result, his paper suggests
that debt reduction could become a more
successful policy tool than obtaining
additional loans. Addison, Mavrotas and
McGillivray (2005) examine trends in
official aid to Africa over the period 1960 to
2002. The authors largely emphasize the
tremendous decrease in aid over the last
decade which will have an impact on
Africans living in poverty and the African
economy as a whole. As a result of the
shortfall in aid, the MDGs will be much
harder if not impossible to be achieved. This
paper concludes that aid in fact does
promote growth and reduces poverty.
Furthermore, it also positively impacts
public sector aggregates, contributing to
higher public spending and to lower
domestic borrowing.
Foreign aid was revealed to have a
significant positive effect on growth
according to Gomanee et al (2005). This was
released when a sample of Sub-Saharan
African countries was studies over 27 years
period, i.e., 1970-1997. The precise number
of countries in the sample was 25. In his
research, Ram (2004) looks at the issue of
poverty and economic growth from the view
of recipient country’s policies as being the
key role in the effectiveness of foreign aid.
Nevertheless, in his paper the author
disagrees with the widely-acknowledged
view that redirecting aid toward countries
with better policies leads to higher economic
growth and poverty reduction rates. As a
result, based on his research the author
concludes that evidence is lacking to
support the leading belief that directing
foreign assistance to countries with good
‘policy’ will increase the impact on growth
or poverty reduction in developing
countries.
3.0 STRUCTURE OF THE NIGERIAN
ECONOMY
