The Impact of Foreign Aid on Macro Economic Variables in Nigeria (1980-2010)

Abstract

The paper examined the Impact of Foreign aid on  macroeconomic variables in Nigeria using time series data covering the period 1980 through 2010. The methodology employed includes Co integration and  Vector Error Correction. We verify the stationarity properties of the variables used in the model via unit root test and the short and long run relationship via co integration test. The study found that foreign aid is positively related to investment, economic growth and exchange rate but negatively related to inflation. The study submits that the use of foreign aid should be encouraged since it promotes investment and growth and it is not inflationary. Consequently,   government should step up its effort to tackle the infrastructural challenges facing the country so as to endear the country to foreign aid and other forms of global capital inflows. This will go a long way for the countries to meet the millennium development goals of growth and poverty reduction by 2015.