FOREIGN AID, DEBT AND GROWTH NEXUS IN NIGERIA
Abstract
Foreign aid and debt are viable sources of financing government deficits as well as projects and programmes. This article examined the impact of foreign aid, external debt and domestic debt on economic growth in Nigeria for the period 1981-2010. Co-integration and error correction mechanism were employed to determine the long run relationship among the variables and correct for disequilibrium in the short run. The parsimonious error correction results show a positive relationship between the dependent variable, domestic debt and foreign aids. On the other hand, there is a negative relationship between economic growth rate and external debt. An increase in domestic debt and foreign aid inflows brought about 2.5 and 0.79 percent economic growth respectively. However, the model had a poor fit. The conditions for foreign aid should have broader participation by recipients. In addition, donors should harmonize and coordinate their various processes of initiating, implementing and monitoring projects as recipient countries find it very difficult to coordinate such numerous flows. Government should improve her revenue mobilization base and debt should be within its budgeted or international threshold.
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