Corruption and Foreign Aid Nexus in the African Continent: An Empirical Analysis for Nigeria

Abstract

The huge transfer of resources as foreign aid by various donors since 1960s and the unfortunate prevalence of high level of systemic corruption in Africa with Nigeria-a major culprit, has become a source of concerns in global discourse. Against this background, this study investigates the nature and pattern of causality existing between these important macroeconomic variables in Nigeria. Also, the study examines the relevance of the corruption trap hypothesis. Hence, Autoregressive Distributed-Lag (ARDL) models based on Cointegration and Granger-causality tests were utilized. Evidently, the findings indicate that both short and long-run causality exists between the two variables. Similarly, there is unidirectional causality flowing from corruption to foreign aid. The finding also reveals that neutral causality exists between foreign aid and economic growth, which negates theoretical expectations. Above all, the findings provide evidence that Nigeria is a victim of corruption trap. Hence, this study therefore recommends that Nigerian government should be more proactive on the anti-corruption war and to ensure that revenues from foreign aid are judiciously utilized. Again, there is the urgent need for more fiscal discipline at various levels of government in the country, so as to curtail the high level of fiscal recklessness that are fast becoming the governance culture in Nigeria.

Keywords: Corruption, Foreign aid, ARDL, Nigeria, Causality, Economic growth, Africa

JEL Code: D73, F35, B41, O40, O55