Interplay of Foreign Aid, External Debt and Economic Growth: The Nigeria Experience

Abstract

This work studied the interplay of foreign aid, external debt and economic growth. Given the likely simultaneity between foreign aid, external debt and economic growth, we used the seemingly unrelated regression estimation (SURE) model to examine the interplay between these variables using Nigerian data. We found that foreign aid has positive impact on growth and that external debt has negative impact on economic growth in Nigeria. A novelty in this study is that there is evidence of complex interplay between the level of external debt and aid inflows. These findings, therefore, have some policy implications as discussed in the work.