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FOREIGN AID AND ITS IMPACT ON SOCIO-ECONOMIC DEVELOPMENT IN NIGERIA

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FOREIGN AID AND ITS IMPACT ON SOCIO-ECONOMIC DEVELOPMENT IN NIGERIA

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FOREIGN AID AND ITS IMPACT ON SOCIO-ECONOMIC DEVELOPMENT IN NIGERIA

TABLE OF CONTENTS

 

Cover Page. i

Certification. iii

Dedication. iv

Acknowledgements. v

Table of Contents. vi

Abstract viii

CHAPTER ONE: INTRODUCTION.. 1

1.1      Background to the Study. 1

1.2      Statement of the Problem.. 3

1.3      Research Questions. 4

1.4      Objectives of the Study. 5

1.5      Scope of the Study. 5

1.6      Significance of the Study. 6

1.7      Research Methodology. 6

1.8      Limitations of the Study. 7

1.9      Definition of Terms. 7

CHAPTER TWO: LITERATURE REVIEW AND THEORETICAL FRAMEWORK.. 9

2.1      Literature Review.. 9

2.2      Theoretical Framework. 67

CHAPTER THREE: NATURE AND IMPACT OF FOREIGN AID.. 73

3.1      Evaluation of Nigeria Socio-Political and Economic Development 73

3.2      The Impact of the Foreign Aid on Socio-Political and Economic Development of    Nigeria  79

CHAPTER FOUR: CHALLENGES AND PROSPECT OF FOREIGN AID ON NIGERIA’S SOCIO-POLITICAL AND ECONOM IC DEVELOPMENT. 84

4.1      Analysis of the Political/Economic Impact of Foreign Aid on Nigeria. 84

4.2      Challenges and Prospect of Foreign Aid on Nigeria’s Development 90

CHAPTER FIVE:  SUMN’IARY, CONCLUSION AND RECOMMENDATION.. 95

5.1      Summary. 95

5.2      Conclusion. 96

5.3      Recommendations. 97

 

References. 100

 

 

ABSTRACT

The study examines the impact of foreign aid on the economic development of Nigeria. The study adopts the historical method of data analysis involving a critical but systematic analysis of secondary data extracted from textbooks, journals, articles newsprint amongst others. The findings reveal that foreign aid has had both positive and negative impacts. Nevertheless, its impact on Nigeria has clearly been insufficient in many cases to counteract other unfavourable influences. Various studies have shown that foreign aid have barely compensated for losses resulting from the decline in terms of trade, let alone meeting the resource needs for rapid and sustained growth. Furthermore, the high burden on a society, identified by a high dependency ratio, has a significant negative impact on growth in most specifications. The study however, recommends that Developing countries, including Nigeria should intensified efforts within the country aimed at establishing a policy framework that is more conducive to investment and employment generation that reaches out to the poor.

 

 

 

CHAPTER ONE:
INTRODUCTION

1.1         Background to the Study

The role of foreign aid in the growth process of developing countries has been an issue of intense debate. Foreign aid is an important issue given its implications for poverty reduction in developing countries. Previous empirical studies on foreign aid and economic growth generate mixed results. For example, Addison, Mavrotas and McGillivray (2005) find evidence for positive impact of foreign aid on growth; Abegaz (2005) find evidence for negative impact of foreign aid and growth, while AFDB (2005), AFDB (2004) find evidence to suggest that aid has no impact on growth. It should be noted that, although Adelman (2000) concluded that foreign aid has positive effects, this conclusion applies only to economies in which it is combined with good fiscal, monetary, and trade policies.

The main role of foreign aid in stimulating economic growth is to supplement domestic sources of finance such as savings, thus increasing the amount of investment and capital stock. As Adelman (2000) points out, there are a number of mechanisms through which aid can contribute to economic growth, including (a) aid increases investment, in physical and human capital; (b) aid increases the capacity to import capital goods or technology; (c) aid does not have indirect effects that reduce investment or savings rates; and aid is associated with technology transfer that increases the productivity of capital and promote endogenous technical change. According to Addison, Mavrotas  and  McGillivray (2005), four main alternative views on the effectiveness of aid have been suggested, namely, (i) aid has decreasing returns, (ii) aid effectiveness is influenced by external and climatic conditions, (iii) aid effectiveness is influenced by political conditions, and  (iv) aid effectiveness depends on institutional quality. It is interesting to note that in recent years there has been a significant increase in aid flows to developing countries although other types of flows such as foreign direct investment and other private flows are declining. For example, according to the Organization for Economic Corporation and Development (OECD, 2009), foreign direct investment and other private flows are on the decline, and remittances are expected to drop significantly in 2009. Budgets of many developing countries were hit hard by the rises in food and oil prices in the last two years. Many countries are not in a strong fiscal position to address the current financial crisis. According to the OECD (2009), in 2008, total net Official Development Assistance (ODA) from members of the OECD’s Development Assistance Committee (DAC) rose by 10.2% in real terms to  US$119.8 billion and is expected to rise to US$130 billion by 2010. Africa is the largest recipient of foreign aid. For example, net bilateral ODA from DAC donors to Africa in 2008 totaled US$26 billion, of which US$22.5 billion went to sub-Saharan Africa. Excluding volatile debt relief grants, bilateral aid to Africa and sub-Saharan Africa rose by 10.6% and 10% respectively in real terms.

Given the importance of foreign aid to the economies of developing countries, it is important to understand its contribution to economic growth of developing countries. Therefore, this study analyzes the effects of foreign aid on the economic growth of Nigeria.

1.2         Statement of the Problem

Does aid promote economic growth? Interest in this question has grown as large infusions of aid to developing countries have been recommended in recent years as a means of escaping poverty traps and promoting development (ActionAid, 2005). Major efforts have been underway to mobilize resources for increases in aid (e.g., through an International Financing Facility). In contrast, some have argued that aid has historically been ineffective in promoting growth (ActionAid, 2005) and large increases in aid are therefore undesirable. An intermediate position has been that more aid spurs growth under specific conditions, such as when countries have good macroeconomic policies (Abegaz, 2005). Despite the large literature on aid and growth, “the debate about aid effectiveness is one where little is “settled” (Rajan, 2005:54). Empirical evidence has been provided in favour of the argument that aid spurs economic growth unconditionally or in certain macroeconomic environments (Abegaz, 2005). It is against this backdrop that the study seeks to evaluate the impact of foreign aid on Nigeria’s economic development.

1.3         Research Questions

  1. What is the nature of foreign aid that Nigeria is receiving?
  2. Has Nigeria derived any significant benefit from foreign aid?
  • What is the challenges and prospect of foreign aid on Nigeria economic development?
  1. How can these challenges be ameliorated?

1.4         Objectives of the Study

The main objectives of the study are to examine the impact of foreign aid on Nigeria’s economy development. The specific objectives, however includes the followings:

  1. To examine the nature of foreign aid giving to Nigeria.
  2. To establish whether Nigeria has derived any significant benefit from foreign aid.
  3. To evaluate the challenges and prospect of foreign aid on Nigeria’s economic development.
  4. To proffer solutions to the identified challenges of foreign aid on Nigeria’s economic development.

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