Estimating the Dynamic Relationship between Foreign Aid and Infrastructural Development in Nigeria (Published)
This paper estimates the dynamic relationship between foreign aid and infrastructure development in Nigeria. Public capital expenditure forms basis for measuring infrastructure development while ODA, broad-based grants and technical cooperation grants were utilized as the core measures of foreign aid. The data analysis tools include Autoregressive Distributed Lag (ARDL) model, unit root and cointegration tests. The unit root test results revealed that the variables have mixed integration order. Again, the bounds cointegration test result showed that the variables depict long run equilibrium relationship at 5 percent level of significance. The short run result reveals that the contemporaneous value of ODA has significant positive relationship with public capital expenditure. With 1 percent increase in ODA inflows, Public investment increases to about 0.8850 percent. Additionally, the second and third lags of technical cooperation grants are positively and significantly linked to public capital expenditure in the short run. The long run result reveals that ODA and broad-based grants positively influenced public capital expenditure. As observed from the regression estimates, ODA has the larger positive impact on public investment expenditure than broad-based grant in the long run. This is a pointer that ODA is an important channel through which foreign aid bolster infrastructure development in Nigeria. Hence, it is recommended that the General Budget Support (GBS) development aid from donor countries and agencies should prioritize public capital expenditure with a view to improving the level of infrastructural development in Nigeria.
Keywords: ODA, broad-based grants, foreign aid, infrastructure development, technical grants and Nigeria.