The Impact Analysis of the Relationship Between Foreign Aid and Economic Development in Nigeria

Abstract

This study examines the impacts of foreign direct investment (FDI) as a proxy for Foreign Aid, alongside other critical economic and political variables, on Nigeria's economic development. Utilizing an Ordinary Least Squares (OLS) regression model from 1981 to 2022, it explores the dynamics between FDI, trade openness, unemployment rate, corruption index, inflation rate, political stability, and population growth rate in shaping Nigeria's economic growth trajectory. The findings reveal that FDI significantly contributes to economic development, while trade openness highlights the importance of a conducive external economic environment. Conversely, the adverse effects of inflation and corruption highlight critical challenges that undermine the potential benefits of foreign aid and investment. This study highlights the complex relationship between foreign aid, economic policies, and institutional frameworks. It emphasizes Nigeria's need to bolster governance and macroeconomic stability to optimize the developmental impacts of foreign aid. Through empirical analysis, this research contributes to the discourse on development economics, offering professional insights into the conditions under which foreign aid can effectively foster sustainable economic growth in Nigeria.