Foreign Aid, Domestic Investment and Consumption in Nigeria: A Causality Analysis
- October 26, 2020
- Posted by: RSIS Team
- Categories: Economics, IJRISS
International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue IX, September 2020 | ISSN 2454–6186
Foreign Aid, Domestic Investment and Consumption in Nigeria: A Causality Analysis
Ezekiel Mijah Elias, Enam Pagiel Abalis
Department of Economics, Adamawa State University, Mubi – Nigeria
Abstract : Foreign aid are originally provided as supplement to domestic investment in the recipient economies, however there are argument that in some instances foreign aid would rather promote domestic consumption in the recipient economies. This research therefore aimed at investigating the role of foreign aid in explaining the behaviour of domestic investment and consumption in Nigeria within the period 1981 to 2018. The research adopted the Toda – Yamamoto approach to causality and found that, multilateral aid explained the behaviour of domestic investment in Nigeria, but bilateral aid is not significant in explaining the behaviour of domestic investment in Nigeria. In addition, the research also found that both multilateral and bilateral aid are significant in explaining government consumption expenditure in Nigeria. Based on these findings, the researcher strongly recommends the use of multilateral channel of aid delivery against the traditional bilateral mode of aid delivery.
Key words : foreign aid, investment, consumption, bilateral aid and multilateral aid.
I. INTRODUCTION
Developing economies often suffer from poor level of capital formation which often arises due to low income and low savings. In order to deal with this problem of poor capital formation these economies look forward to foreign capital. Prominent among these foreign capitals is foreign aid. Foreign aid is provided to developing countries with the sole purpose of promoting economic development. Sachs (2005) argued that for the less developed countries to escape the poverty trap and achieve economic development there was the need for more infusion of aid into the developing countries of the world.
