EFFECT OF FOREIGN AID ON EMPLOYMENT GENERATION IN NIGERIA

Abstract

This study was on effect of foreign aid on employment generation in Nigeria. Three objectives were raised which included; To ascertain the relationship between foreign aid and employment generation, to ascertain the relationship between foreign aid and poverty reduction and to ascertain the relationship between foreign aid and Nigeria economy. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected Nigerians CBN. Hypothesis was tested using Chi-Square statistical tool (SPSS).

Chapter one

Introduction

1.1Background of the study

The term “foreign aid” implies a number of varied activities, ranging from humanitarian support in the wake of natural disasters to military assistance and arms donations. It is a voluntary transfer of resources from one country to another (Uzonwanne and Uju, 2015) It may serve one or more functions such as being a signal of diplomatic approval or strengthening a military ally or rewarding a government for behaviour desired by the donor or extending the donors cultural influence or providing infrastructure needed by the donor for resources extraction from the recipient country or gaining other kinds of commercial access (Uzonwanne and Uju, 2015). Hence, the role of foreign aid in the growth process of developing countries has been a topic of intense debate given its implication on employment generation and poverty reduction in developing countries.

It has been established by OECD-DAC (1999) that foreign aid is important to the development of SubSahara Africa, as it is a means of increasing the capital available for investment and the economic growth needed to reduce unemployment, poverty and raise living standards in the continent. It also contributes to sustainable economic development, as it results in the transfer of new technologies, skills and production methods. It provides resources for industrialization, enhance efficiency of resource use

The role of foreign aid in the growth process of developing countries cannot be over-emphasized and has been a topic of intense debate given its implication for poverty reduction in developing countries. Previous empirical studies on foreign aid and economic growth generate mixed result with larger proportion of these empirical studies concluding that economic growth would be stimulated by Foreign Direct Investment (Oyatoye et al., 2011; Saibu et al., 2011 and Umoh et al., 2011). Also, studies which include Fasanya and Onakoya (2012); Nkoro and Furo (2012) find a positive relationship between aid and growth while Bakare (2011), establishes a negative relationship. Papanek (1973), Dowling and Hiemenz (1982); Gupta and Islam (1983); Hansen and Tarp (2008); Burnside and Dollar (2000), Gomance et al., (2005). Dalgaard et al., (2004) and Karras (2006), find evidence for positive impact of foreign aid on growth. Burnside and Dollar (2000); Brautigam and Knack (2004) find evidence for negative impact of foreign aid on growth. In between, however, some argued on the role of economic policy in determining the effectiveness of foreign aid in aid recipient countries. Pederson (1996), argues that it is not possible to conclude that the foreign aid has a positive impact on growth. Morrissey (2001), claimed that aid works well conditionally on other variables in employment generation. Mosley (1980), Mosley et al., (1987); Boone (1996); Jensen and Paldam (2003), found evidence to suggest that aid has no impact on growth. Many other authors find no evidence that aid affect growth in developing countries. By and large, the relation between aid and employment remains inconclusive and is worthy-being studied further.

There is no doubt that Nigerian economy is characterized by low level of income, high level of unemployment, very low industrial capacity utilization, and high poverty level just to mention a few of the various socio-economic problems bedevilling the nation. In addressing these problems, foreign aid has been suggested as a veritable option for augmenting the meager domestic resources. While some countries that have benefited from foreign assistance at one time or the other have grown such that they have become aid donors (South Korea, North Korea, China etc.), majority of countries in Africa like Nigeria have remained backward. Nigeria has continued to benefit from all sort of foreign assistance and in fact still collect at least as much as the amount collected in the early 1980s, yet socio- economic development has remained dismal. While there could be so many factors both qualitative and quantitative explaining these unfavourable trends, the incessant socio-political crisis, policy inconsistence, macroeconomic instability and bad governance evident in Nigeria are indeed indicators of poor policy framework, should give one a pause (Salisu, 2007).

Statement of the problem

Over the last half century, foreign aid has emerged as a dominant strategy for alleviating poverty in the third world. Not coincidentally, during this period, major international institutions, such as the United Nation, World Bank and International Monetary Fund gained prominence in global economic affairs (Hjertholm and White 2003). Despite the window of opportunity opened to the lesser developed countries (LDCs) of the world to develop using foreign aids, the reverse is the case as they continue to suffer from economic hardship, raising question of whether foreign aid is a worthwhile and effective approach to boosting growth and development in recipient economies. In Nigeria, there have been huge and significant in-flows of foreign aid into the economy, which have brought about gross dependency on foreign aid. Although the inflow of foreign aid is considered as an augmentation to any recipient, but it is believed that its consequence most time exceed its benefits. The situation is such that the economy of Nigeria does not maximize its productive capacities and thus, operates at a level below maximum potential. What is mindboggling is that foreign aid sent to aid Nigerians has not really reduced most of the problems that have been confronting the country for ages. The dependence of Nigeria for foreign aid in-flow has in a long way diluted the quest of the economy to develop its capacity as its government does not make efforts to develop its internal utilization of its human and non-human resource. As a consequence, to this, the unemployment rate has remained an unresolved macroeconomic problem in Nigeria. Despite the benefits inherent in aids given by developed countries and multinational institutions to help alleviate poverty, induce economic growth, and raise living standards in aid recipient countries aid literature have been inconclusive as to its effects on economies of developing countries like Nigeria. In the aid literature, various theoretical and empirical studies have been conducted on LDCs to determine the actual effects of foreign aid on economic growth. For example, pro-aid researchers (Burnside and Dollar, 2004; Camelia and Sanjay, 2009; Dalgaardet al., 2004; Hansen and Tarp, 2001; Sachs et al., 2004;) found a positive impact of foreign aid on economic growth. However, Lensik and White (2001); Easterly (2003); Malik (2008); Hamid (2013), while challenging this finding, proved on the grounds that aid is ineffective, contributing to the anti- aid literature. Despite having an enormous literature on this subject, a consensus has not been reached on the impact of aid on growth, and yet the results are still inconclusive (Ekanayake and Chatma, 2010; Macmillan, 2011; Tadesse, 2011) and this suggest that aid and growth rate are neither positively, nor negatively related. These paradoxical results obtained in various studies conducted on aid recipient countries and anecdotal views of prominent development economists demand that this subject need further study. From the foregoing, it becomes expedient to investigate the effect of foreign aid on employment generation in Nigeria

Objective of the study

The objectives of the study are;

1. To ascertain the relationship between foreign aid and employment generation
2. To ascertain the relationship between foreign aid and poverty reduction
3. To ascertain the relationship between foreign aid and Nigeria economy

Research hypotheses

The following research hypotheses will be formulated;

H0: there is no relationship between foreign aid and employment generation

H1: there is relationship between foreign aid and employment generation

H0: there is relationship between foreign aid and poverty reduction

H2: there is relationship between foreign aid and poverty reduction

Significance of the study

The study will be significant to students and Nigeria government. The study will give a clear insight on the effect of foreign aid on employment generation. The study will also serve as a reference to other researcher that will embark on the related topic

Scope and limitation of the study

The scope of the study covers effect of foreign aid on employment generation. The study will be limited to Nigeria economy

Limitations/constraints are inevitable in carrying out a research work of this nature. However, in the course of this research, the following constraints were encountered thus:

1. Non-availability of enough resources (finance): A work of this nature is very tasking financially, money had to be spent at various stages of the research such resources which may aid proper carrying out of the study were not adequately available.

Time factor: The time used in carrying out the research work is relatively not enough to bring the best information out of it. However, I hope that the little that is contained in this study will go a long way in solving many greater problems.

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