Table of Contents
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Research Questions
1.4 Objectives of the Study
1.5 Scope of the Study
1.6 Significance of the Study
1.7 Research Methodology
1.8 Limitations of the Study
1.9 Definition of Terms
CHAPTER TWO: LITERATURE REVIEW AND THEORETICAL FRAMEWORK
2.1 Literature Review
2.2 Theoretical Framework
CHAPTER THREE: NATURE AND IMPACT OF FOREIGN AID
3.1 Evaluation of Nigeria Socio-Political and Economic
3.2 The Impact of the Foreign Aid on Socio-Political and
Economic Development of Nigeria
CHAPTER FOUR: CHALLENGES AND PROSPECT OF FOREIGN AID ON
NIGERIA’S SOCIO-POLITICAL AND ECONOM IC DEVELOPMENT
4.1 Analysis of the Political/Economic Impact of Foreign
Aid on Nigeria
4.2 Challenges and Prospect of Foreign Aid on Nigeria’s
SUMN’IARY, CONCLUSION AND RECOMMENDATION
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.
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.
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
What is the nature
of foreign aid that Nigeria is receiving?
Has Nigeria derived any significant benefit from
What is the challenges and prospect of foreign aid on
Nigeria economic development?
How can these challenges be ameliorated?
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
importance of foreign aid to the economies of developing countries, it is
important to understand its contribution to economic growth of developing
countries. This study analyzes the effects of foreign aid on the economic
growth of Nigeria. This analysis will cover the nature, the benefits and other
wise, the challenges and prospect of foreign aid on the Nigeria’s economy. In
doing this, the study will focus on
the time period 1999-2010.
The role of
foreign aid in the growth process of developing countries has been a topic of
intense debate. Foreign aid is an important topic given its implication for
poverty reduction in developing countries. Previous empirical studies on
foreign aid and economic growth generate mixed results. As such, the
significance of the study will arise from the fact that it will highlight the
nature, impact, challenges and prospect of foreign aid as it concern Nigeria.
This is further in line with the fact that the findings will provide insight
and data for policy makers and equally serve as a reference point for any
future study. Above all, the study will add to existing stock of knowledge.
Due to the nature of the research
work, the study will adopt the historical method. This method involves a
critical, but systematic analysis of secondary data extracted from textbooks,
journals, seminar papers, internet printout amongst others. Data will also be
obtained from official sources, both national and international, such as the
Federal government and Central Bank of Nigeria (CBN) and the World Bank among
There is no endeavour without
constraints. Thus in the course of the study, the researcher was constrained by
factors such as inadequate finance. This was due to the harsh economic
situation in the country. The second factor is inadequate time which is a
corollary to the first factor, since the researcher had to combine academic
work with other economic endeavour. However, conscious efforts were made by the
researcher to limit the effect of these factors on the content validity of the
Due to the plethora of concepts within the social
science discipline it becomes imperative to operationally define certain
concepts within the context of its usage in the research work.
the following concepts will be defined.
Foreign aid refers to transfer of real resources from one government or public
institution of the richer countries to governments of less developed countries
(LDCs) in the third world
This concepts within the context of it usage is defined as the process of the
intensification of economic, political, social and cultural relations across
this simply means the ability of states to make its decisions and policies
without an internal or external interference.
Economic sovereignty: This is the ability of a nation-state to determine the values, goals,
targets, direction of its economic policies including its growth pattern
without any external interference.