EFFECTS OF FOREIGN AID ON ECONOMIC GROWTH IN NIGERIA (1974 – 2005)

This study investigated the effects of foreign aid on economic growth in Nigeria for the
period 1974 to 2005. The aggregate aid transfers were disaggregated into productive and
non-productive aid flows, whereby we examined the trend in the productive and nonproductive
aid flows using the graphical approach, determined the degree of aid volatility
using Autoregressive Conditional Heteroskedasticity (ARCH) and Generalized Autoregr
essive Conditional Heteroskedasticity (GARCH) analytical technique, determined the
cyclicality and the stability of aid inflow with growth using correlation technique,
evaluated the effects of productive and non-productive aid on growth and also evaluated
the Dutch disease effects of productive and non-productive aid flows in Nigeria through
growth models, using Generalized Method of Moment analytical technique.
The study used secondary data, spanning 1974 to 2005. Data on aid flows were
obtained from the Organization for Economic Cooperation and Development (OECD)
Credit Reporting System (CRS) data base. While other time series data were obtained
from the Central Bank of Nigeria (CBN) Statistical Bulletin, and the World Bank’s
World Development Indicators (WDI) data base.
The results of our analyses revealed that aid inflows to Nigeria are volatile, procyclical
and destabilizing. Analysis of the differential effects of productive and nonproductive
aid flows revealed that both productive and non-productive aid flows are
growth enhancing in Nigeria. But, the volatilities of productive and non-productive aid
flows are negatively related to growth. Moreover, the Dutch disease analysis revealed
that both productive and non-productive aid flows engender Dutch disease. Therefore, we
concluded base on the foregoing results that Nigeria can utilize aid income if the
variability of the foreign aid inflows is mitigated and the Dutch disease effect aid flows is
controlled.