This study examines the role of foreign institutional loans in reducing income inequality in Nigeria. Time series data spanning from 1980 to 2017 on each of the variables were sourced from the National Bureau of Statistics and World Development Indicators (WDI). The augmented Dickey Fuller (ADF) unit root test, Johansen multivariate cointegration approach, vector error correction model (VECM) and Granger causality tests were employed as techniques for data analysis. The ADF unit root test results reveal that the variables are all stationary upon first difference and as such they all I(1). The cointegration test results indicate that the variables have long run relationship. The estimated VECM shows that loans from the World Bank and African Development Bank impacted negatively on income inequality. This finding suggests that borrowings from the World Bank and African Development Bank are helpful in collapsing the disparity in the distribution of income within the Nigerian population. The Granger causality test results reveal that joint causality runs from the all the underlying foreign institutional loans to poverty and income inequality. Given the findings, it is recommended that the Federal Ministry of Finance in collaboration with the Debt Management Office (DMO) should ensure that loans sourced from foreign institutions are channeled into productive investments in order to foster rapid and sustained reduction in income inequality.
Keywords: African Development Bank, Federal Ministry of Finance and Debt Management Office., Foreign Institutional Loans, Income Inequality, world bank
