Dynamic Aid-Growth Relationship in Nigeria: A Two-Gap Approach

Abstract

This study aims to critically analyze the dynamic aid-growth interaction in Nigeria by revisiting the two-gap framework. The study utilized various unit root tests to verify the integration order of indicators utilized. The variables are integrated at a mixed level i.e. 1(0) and 1(1) thus, ARDL techniques were utilized to investigate the short and long-run interactions. Furthermore, a robustness check was carried out by utilizing FMOLS and DOLS. Findings of the FMOLS, and DOLS comply with the ARDL estimate. In the long run; (i) foreign aid, gross domestic saving and gross capital formation have positive and significant relationship with GDP growth while trade has an insignificant association with GDP growth; (ii) In the short run, all the independent variables have positive and significant link with GDP growth with the exemption of trade; (iii) the FMOLS and DOLS affirms the findings of the ARDL long-run estimate; and (iv) since trade has an insignificant relationship with GDP growth, this study refute the two-gap theory in the case of Nigeria. Recommendations are put forward based on the findings.

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