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This study is motivated by the bid to understand why there seemed to be little development progress in Nigeria despite the inflow of foreign capital or aid from different western counties and agencies. Moreover, it has been observed that the act and developmental programmes in Nigeria is intended to expand western commercial interest and not to the actual areas to the need of Nigerian development. This stipulation has culminated into a yawning gap between development and understanding. The gap has attested to the truism that poverty and underdevelopment in Nigeria result from the global process of exploitation. This exploitation brought us to the use of dependency theory in analyzing the research work. Also, four research questions were raised and four hypotheses were formulatary source of data collection (library research) in other to achieve the objective of the study. From the study, we observed that there is a negative impact of foreign aid to the development of Nigeria’s economy. Based on the finding, recommendation were made on how to achieve a sustainable development without reliance on foreign aid.



  • Background of the Study

The issue of foreign aid and the concept of the third world countries gained prominence during the cold war which pitched the united states and the former soviet union against each other in an ideological supremacy tussle in the early 1950s and heads of the two power blocs.

No country is an island, this saying to a large extent can be said to be truism as we have come to see the robust interactions between countries of the world today. Every nation today is in one way or the other involved in one form of exchange or another with the rest of the world, this we see through many bilateral and multilateral agreements amongst nations of the world in the fields of technology, economic and social development.

However, the world has come to see these robust interactions to also include assistance in the form of aid from the developed countries of the world to the developing countries to help these countries achieve certain minimum standards that are needed for the growth of nations.

An understanding of the analysis of the relationship between foreign aid and economic development is crucial in knowing the impact of foreign and either on economic growth or on the development of developing countries. According to Alice M. Sindzingre in her work titles “Aid and economic development”, she posits that an understanding of the concept of aid as well as those of development and growth respectively, is required. She stated further that a consensus exist that, beyond an increase in countries’ wealth and individual incomes, “development” encompasses human development (heath and education) and it includes a great variety of heterogeneous elements, for example not only financial flow (grants and long-term loans), but also technical co-operation or debt relief which gives rise to debates on its measurement.

In addition, aid can be made available by different institutions like the multilateral institution; for instance, international financial institution like the World Bank or international monetary fund (IMF) or other Regional institutions like the African Development Bank (ADB). It could also be bilateral for example aid from the government of donor countries or various donor national entities.

Giving alms to Nigeria remain one of the biggest ideas of our time millions clamor for it and governments are judged by it. Calls for more aid to Nigeria are growing louder, with advocates pushing for doubling the amount of international assistance that already goes to Nigeria each year.

In the first decide of the 21st century it has become increasingly obvious that aid have being poured into developing countries has been without visible positive effects and that countries that grow economically did so without aid (a fact seen with the East Asian countries).

After the year 2000, the international monetary fund (IMF) developed a theoretical stance regarding aid that slightly differs from that of the world Bank which gave its mandate as a development Bank defends the view of a positive impact of aid on growth. With its mandate to keep close watch of the global monetary and financial system, the IMF has a more cautious position vis-à-vis and flows which particularly in aid dependent countries may in macroeconomic imbalances and cause inflation and appreciation of exchange rates. In a series of studies, IMF senior researchers have demonstrated the negative impacts of aid on economic growth due to the overvaluation of the recipient countries’ exchange rates caused by aid flows which erodes the competitiveness of manufacturing sectors. This view was posited by Rayan and Subramanian 2005, 2008 and 2011. IMF researchers argue that it is hard to find robust evidence that foreign aid helps countries grow.


  • Statement of the Problem

A dominant feature of the relationship between developed and developing countries since the 1960s is foreign aid. Foreign aid has been a major source of external finance for the majority of countries in Africa and Asia since they gained independence.

From a development view point, aid was originally conceived in the post- world war II environment in the countries were perceived to be caught in a low- income equilibrium trap, unable to generate adequate savings to promote capital formation and rapid economic development. The general belief was that capital from developed countries was needed to provide the required development that would make economic take- off possible. This was the core of the hoo-gap model of chenery and strout (1966). Although the predominant nature of foreign and has changed considerably, from project finance in the 1960s to adjustment support in the 1980s, its economic importance to recipients has remained considerable.

The critical role of foreign aid to sub-shaharan Africa (SSA) was put succinctly by United Nations conference on Trade and Development (UNCTAD), thus: “an increase on official flow of $20billion could trigger a virtueous circle of rising economic development and investment and faster growth in SSA. Doubling the current amount of aid to give a big push to Nigeria economics and African at large could end their dependence within a decade”. This resulted in the commitment by donors and aid users at the world summit for social Development (WSSD) in Copenhagen to reduce the world population living in extreme absolute poverty by 2015.

Recent discussions on the effectiveness of foreign and have focused on Africa because it has received the greatest amount of aid on a per capital basis of any world region. Nigeria has received less foreign aid on a per capital basis than other developing countries in sub-saharan Africa (SSA) while average net real official Development assistance (ODA) for African countries in 1990-96 was $52 per person, Nigeria received just $2.20 per person (Holmgren and Torgney, 1998). As a percentage of Gross National product (GNP), net ODA for SSA averaged 14% while for Nigeria; it was less than 1%.

Nevertheless, aid is still significant to Nigeria, in particular the agricultural sector, a major recipient of foreign aid. Out of a total net ODA of $350 million in 1990, about 25% of this went to the agricultural sector. (Herbst et al, 2001).

Despite the Copenhagen commitment, aid flows to Nigeria and indeed other developing countries have been on the decline. In the view of lensink et al (2001) this is simply a manifestation of the frequently proclaimed and aid fatigue.

Meanwhile in Nigeria and in Africa as a whole, there is a high degree of indebtedness, high unemployment and absolute poverty. Though foreign aid has continued to play an important role in developing countries but there are still poor institutional development, corruption, inefficiencies and bureaucratic failures in the developing countries (Alesina and Dollar, 1998, Furuoka, 2008). Some countries that have benefited from foreign aid at one time or the other have grown such that they become aid donors, (south Korea, North Korea, China, etc.), majority of countries in Africa like Nigeria have remained backward. Nigeria has continued to benefit from all sorts of foreign aid and infact still collect at least as much as the amount collected in the early 1980s, yet economic development has remained dismal (Fasanya and Onakoya, 2012). There, the macroeconomic impact of foreign aid on economic development in Nigeria remains inconclusive and is worth being studied further. Hence, the research questions are:

  • Why has Nigeria remained largely economically underdeveloped despite her reliance on foreign aid?
  • How does reliance on foreign aid impact on Nigeria’s development model?
  • What are the challenges and prospect of foreign aid on Nigerian’s economic development?
  • Have Nigeria drive any significant benefit from foreign aid?
    • Objectives of the Study

The broad objective of this study is to discover the impact and implications of foreign aid for the development of Nigeria state.

Specifically, the study intends to:

  • Explore the expected role of foreign aid to Nigeria’s development drives.
  • To examine the conditionalities attached to foreign aid by international monetary fund (IMF) and the implications of such to Nigeria’s economic development.
  • To discover the fundamental reason why Nigeria till her fourth republic has remained largely underdeveloped inspite of her increasingly acceptance of foreign aid to develop her economy.
  • To examine significant benefits that Nigeria has drive from foreign aid.
  • To express challenges and prospect of foreign aid on Nigeria’s economic development
  • Research Hypotheses



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