Abstract:
Most developing countries strive to attract foreign aid because of its anticipated efficacy in fostering economic development in recipient countries. This study examines the impact of foreign aid on savings in Nigeria, using a two step approach of Engle-Granger procedure in a co-integration analysis. The study uses time series on a number of macroeconomic variables, spanning for the period 1970-2009. Secondary data were sourced from Central Bank of Nigeria (CBN) statistical bulletin (various issues). Results indicate that in the long-run, foreign aid (ODA), impacts positively on national savings (GNS) and negatively in the short –run. On the contrary, the long-run effect of foreign direct investment (FDI), on national savings is negative and positive in the short-run. The variables, gross domestic product (GDP) and interest rate impact positively on national savings both in the long and short run. The error correction mechanism (ECM), term was found to be negative and significant, which confirms the existence of a long-run relationship between foreign aid and savings in Nigeria. Based on the above findings, it is recommended that aid supporting institutions and policies require much strengthening in order to increase the magnitude of its impact.Government should also, establish a civil society fund on aid effectiveness, results and accountability to support the review and independent accountability function of national civil society organizations in aid effectiveness for results and accountability.
