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

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  • Sebastine Ugochukwu Ugwuegbe
  • I.G Okafor
  • Christian Azino Akarogbe

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.

Suggested Citation

  • Sebastine Ugochukwu Ugwuegbe & I.G Okafor & Christian Azino Akarogbe, 2016. "Effect of External Borrowing and Foreign Aid on Economic Growth in Nigeria," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(4), pages 155-175, April.
    • Handle: RePEc:hur:ijarbs:v:6:y:2016:i:4:p:155-175
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    References listed on IDEAS

    as
    1. Ismail O. FASANYA & Adegbemi B.O ONAKOYA, 2012. "Does Foreign Aid Accelerate Economic Growth? An Empirical Analysis for Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 423-431.
    2. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
    3. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
    4. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

    1. Ali Yassin Sheikh Ali & Mohamed Saney Dalmar & Ali Abdulkadir Ali, 2018. "Effects of Foreign Debt and Foreign Aid on Economic Growth in Somalia," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(11), pages 1-95, November.
    2. Faruq Umar, Quadri, 2019. "A Re-Examination of the Relationship between Foreign Flows and Economic Growth in LLDCs: Dynamic Fixed Effects (DFE)," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 6(2), pages 169-179.
    3. Olubunmi Edward Ogunlusi, 2019. "Financing Economic Growth and Development in Nigeria between 1981-2017," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(3), pages 71-79, September.
    4. Adekunle, Wasiu & Sulaimon, Mubaraq, 2018. "A Re-examination of the Relationship between Foreign Capital Flows and Economic Growth in Nigeria," MPRA Paper 87754, University Library of Munich, Germany.
    5. Peter E. Ayunku & Dumani Markjackson, 2020. "Impact of External Debt on Nigeria’s Foreign Reserve Portfolios," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 7(1), pages 1-7.
    6. Tiamiyu, Kehinde A., 2019. "Foreign aid and economic growth: Does non-linearity matter?," MPRA Paper 108588, University Library of Munich, Germany, revised Jul 2109.

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