FOREIGN AID AND THE NIGERIA ECONOMIC GROWTH
(1985-2012)
ABSTRACT
The purpose of this research is to investigate the Role of Foreign Aid on Economic Growth using a Sample Time series Data on Nigeria from 1985-2012.
The model in this paper studied the effect of Foreign Rate, Rate of Domestic Savings, Rate of Fiscal Deficit, and Rate of Inflation on using econometric techniques-ordinary least square (OLS) methods. The positive signs of the coefficient of Rate of Foreign Exchange and Rate of Savings conform to the a priori expectation, while Rate of Fiscal Deficit and Rate of inflation did not. The positive signs 0f the coefficient variable shows that there is a direct relationship between variables and gross domestic product.
From the presentation of regression result, it indicate that, about 83% of the systematic variation in GDP was explained or accounted for by all explanatory taken together as indicated by coefficient of determination(R2)  value of 0.83 and when adjusted for the degree of freedom, the model could still be accounted for about 80% of such variation as indicated by adjusted coefficient of determination(R-2 ) value of 0.80 this means that only about 20% of such variation was not accounted for or covered by stochastic error term, this means that the model has a good fit and can be used for policy formulation.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1    Background To Study                        
1.2     Statement of the Problem                    
1.3    Research Questions                        
1.4        Objectives of The Study                        
1.5    Research Hypothesis                        
1.6    Scope of The Study                        
1.7    Significance of The Study                    
1.8    Limitation of The Study                        
CHAPTER TWO: LITERATURE REVIEW
2.1    Conceptual Framework                        
2.2    Types Of Foreign Aid                        
2.3    Why Recipient Countries Accept Aid                
2.4    Effectiveness Of Foreign Aid On The Economy Growth    
2.5    Conceptual And Measurement Problem In Foreign Aid    
CHAPTER THREE: THEORETICAL FRAMEWORK ARE MODEL SPECIFICATION
3.1    Theoretical Considerations                    
3.2    Model Specification                         
3.3    Sources of Data And Methodology                
CHAPTER FOUR: PRESENTATION OF DATA AND ANALYSIS
4.1    Presentation of Regression Result                
4.2    Interpretation of Regression Result                
4.3    Policy Implications                        
CHAPTER FIVE: SUMMARY, RECOMMENDATION AND CONCLUSION
5.1    Summary                                
5.2     Recommendations                            
5.3     Conclusion                                
5.4     Recommendation for Future Research                
    References                                
    Appendix                                 
 CHAPTER ONE
INTRODUCTION
1.    BACKGROUND TO STUDY
Foreign aid can be referred to as a flow of assistance which takes the form of funds, infrastructure and trade openness from high income countries to low income countries. The debate till date has been centered around the significance of this aid on economic of these countries. To a large extent, several researches have shown positive impact of foreign aid on the economic growth of less developed countries (LDCs).
Foreign aid is usually associated with official development assistance, which in turn is a subset of official development finance, and normally targeted to the poorest countries in the world (World Bank 1998). Aid from whatever source is aimed at enhancing economic growth in recipient country. It is the belief of many economists that there is positive relationship between aid and growth. This is the main reason why most aids tried to specify project or target.
How does foreign aid affect the economic growth of developing countries? This is a question which has drawn the attention of many scholars overtime. Papanek (1972) finds positive relation aid and growth. Fayissa and El-Kaissy (1998) shows that aid positively affect economic in developing countries. Singh (1985) also find evidence that foreign aid has a positive and strong effect on growth when state intervention is not included.
The United State currently provides $0.15 in foreign aid for every $100 gross national income, as against an average of more than $0.80 in the scandivian countries. About 20 percent (20%) of United State foreign aid goes to about four countries, Egypt, Pakistan, Jordan, and Columbia. America assistance to Africa in 2003 –exclusive of that related to emergency, military assistance, debt service, and research amounted to about $1 billion (Werlin 2005); between 1989 and 2003, the donor countries provided $200 billion in debt relief of developing countries. China as an emerging economy has renewed efforts in providing aid to developing nations in the last decade. Nigeria since independence as been a major beneficiary of such benevolence from the international community especially the limited state to sub-sahara, Africa and recently from china.
The last goal, that is, Goal 8 of the millennium development goals is to develop a global partnership for development. Although the goal is aimed at integrating the principles sustainable development assistance to developing countries.
Most times, scarcity of resources to achieve macroeconomic goal prompt government of third world countries to rely on foreign aids over the years. Nigeria met it debt commitment through regular servicing. This has been done at the expense of key social services such as health, education, water, and sanitation. This tide of huge debt services was usage after the 2005 debt relief by the Paris club and other independent leaders.
Foreign aid is important sources of revenue to government for building needed infrastructure which is requisite to stimulate economic growth or progress. This research was on two objectives.
(i)To analyse the effect of foreign aid in Nigeria economic growth
(ii). To examine the relationship or association between foreign aid and economic growth.
According to Central Bank of Nigeria (1995) economic growth is an increase in a nation’s output of goods and services as measured by the gross domestic product (GDP).
In attempt to access the effectiveness of foreign aid or assistance, most studies focus on the role of GDP growth and other macroeconomic variation such as investment or public consumption. Implicitly referring to the nation that aid is meant to bridge the saving-investment gap that poor countries face. There has been much less research conducted on the role of foreign aid on the evolution of human development indicators (HDIs).
Aid is meant to improve HDIs and check whether foreign aid can help recipient countries to reach some of the MDS.
Foreign aid can be in form of investment in the economy of the needy countries. Loans, infrastructure development, in addition, grant an subsidized loans are referred to a concessional financing, while loans that carries market or near-market terms (and therefore not considered as foreign aid) are non-concessional financing form. The point of the development Assistance Commitment (DAC), a loan count as aid if it has a grant element of 25 percent (25%) below the present value of a comparable loan at market rates (usually by the DAC, though rather arbitrary to be a 10 percent (10%) with no grace period).
1.2     STATEMENT OF THE PROBLEM
Most analyst have missed a critical point by treating all aid as if were alike in its impact on growth. In a recent Centre for Global Development study, we try to rectify this gap by exploring the impact on growth of aids that actually are aimed at growth.
    Critics such as Milton Freidman, William Easterly, and Peter Bauer, have lead stingy critiques, charging that aids has enlarge government bureaucracies, perpetual bad government, enriched the elites in poor countries or dust been wasted.
This study also aimed at the impact of foreign aid in Nigeria economy.
 1.3    RESEARCH QUESTIONS
This research is designed to complement the case study been done by the Fund and Bank and the millennium product which are mainly forward looking.  Lessons are drawn from country experienced in macroeconomic management of large increase in aid inflows. This research will be guided by the following questions.
1.    Does foreign aid really made any significant impact in Nigeria economic growth?
2.    To what extent has foreign aid been effective role in the Nigeria economic growth?
3.    Are aid inflows inflationary, and what are the appropriate monetary and exchange rate policy response?
4.    How does fiscal policy be adapted to aid inflow.
 1.4     OBJECTIVES OF THE STUDY
The general objective of this study is to examine the activities and performance of foreign aid in the Nigeria economic growth. Other specific objectives guiding the study are as follows.
1.    To reduce inflationary pressure.
2.    To increase state revenue
3.    To reduce poverty
4.    To determine trends in foreign aid in the economy.
5.    To examine development of the foreign aid in the economy.
6.    To examine how foreign aid has performed.
1.5         RESEARCH HYPOTHESIS
In order to ensure accuracy and reliability of the work, the following hypothesis shall be stated in the null and alternative form of hypothesis.
Null Hypothesis
H0: Foreign aid has no significant relationship in the Nigeria economy growth.
Alternative Hypothesis
H1: Foreign aid has significant in the Nigeria economy growth.
1.6         SCOPE OF THE STUDY
The scope of this study will be restricted to the period between 1985-2012.
1.7     SIGNIFICANCE OF THE STUDY
This study explores the impact or the effectiveness of foreign aid in the Nigeria economy growth. This study will be relevant to individuals, corporate organizations, the government and even researchers, and other academic community.
It will also be relevant to the regulatory authorities as it provides relevant data towards the formulation of relevant and important policy.
1.8         LIMITATION OF THE STUDY
The choice of this study is to enable the researchers evaluate or examine thoroughly the effect of foreign aid in the Nigeria economy growth.
However, it should be noted that a study of this nature is faced with some constraint and limitation, in accessibility to needed data, scarcity of materials. Moreover, since the study is based on secondary data, the accuracy of our co-efficient estimate is limited to the extent of the accuracy of the data used.