IMPACT OF FOREIGN AID ON POVERTY REDUCTION IN NIGERIA.

Abstract

One of the major purposes of the demand for foreign aid is to alleviate poverty. What is not clear, however, is whether the substantial foreign aid inflow to Nigeria in recent times has yielded the desired goal of poverty reduction. This work examined the impact of foreign aid on poverty reduction in Nigeria as well as direction of causality for the period 1995 to 2024. Data were sourced from various sources such as Central Bank of Nigeria (CBN) Statistical Bulletin 2024 were the variables used. Autoregressive Distributed Lag (ARDL) Model and Pairwise Granger Causality Test to investigate the long run and short-run dynamics between foreign aid and poverty reduction, and the direction of causality between two variables respectively. The ARDL bounds test result revealed that long run correlation exists among variables in the model. The result of ARDL Error Correction Model indicated that foreign aid has a negative and significant relationship in the short-run similarly it also indicates a positive and significant relationship in the long-run on poverty reduction in Nigeria over the studied period. However, the result of Pairwise Granger Causality test revealed that there is no directional causality between poverty reduction and foreign aid in Nigeria over the period under review. The study recommends that foreign aid flow should be directed more to the poor and the middle class in Nigeria by the government.