ABSTRACT
There has been a steady increase in poverty, starvation, and hunger across Africa as a result of the continent's inherent level of underdevelopment, which has also contributed to the spread of terrorism, political instability, and separatist agendas across the continent and the takeover of Nigeria's and Ghana's political landscapes by extremist groups. Despite its enormous international and domestic debt ceiling, the government faces a variety of pressures to address these problems by increasing public spending. Nigeria and Ghana's governments have renewed optimism of expanding public expenditure via foreign help to this goal. Based on this premise, the study empirically investigates the impact of foreign aid on public expenditure in Nigeria and Ghana from 1981 through 2021. The Study objectively at; establishing the link between; foreign official development assistance (ODA); foreign grant; foreign technical cooperation and public expenditure in both economies over the study scope. The study implored structural unit root, ARDL bound test, ARDL error correction model and auto regressive distributive lag model (ARDL) to regress public expenditure growth (LOGPUBEXGR) for Nigeria and Ghana against foreign official development assistance (LOGFODA), foreign multilateral aids (LOGMFAID), foreign grant (LOGFGRANT) and exchange rate (LOGEXR). The result of empirical examination proved that; increasing the coefficient of exchange rate in Ghana for the period would translate to 175.92% increase in public expenditure growth. In Nigeria, exchange rate likewise showcased a positive additive relationship with public expenditure growth, thus a one percent increase in exchange rate in Nigeria would transmit to 82.75% rise in public expenditure growth in Nigeria. Furthermore, increasing foreign grant for this period in Ghana would transmit a decline of 4.30% in public expenditure growth at a significant rate of 0.006%. in Nigeria. Foreign grant indices indicated a negative influence over the Nigerian economy for the study scope, thus increasing foreign grant in the country for the study duration is expected to transmit 3.72% decline in the values of public expenditure growth tendencies in the country. The study therefore recommends that; government of Nigeria and Ghana should carryout proper review of grants conditions to making sure, it aligns with the corporate developmental goal of the economy over time. Government should review the conditions on the basis of – grant performance requirements; cashback provisions and monitoring, while also favoring National sovereignty over neocolonialism. The study concludes that, while foreign aids in all form has an additive value to government bulk expenditure in Nigeria and Ghana, technical aids has more impactful dimension on long run growth of government expenditure in both countries.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
List of Tables ix
List of Figures x
Abstract xi
CHAPTER 1: INTRODUCTION
1.1 Background
to the Study 1
1.2 Statement
of the Problems 9
1.3 Research
Questions 15
1.4 Objectives
of the Study 16
1.5 Research
Hypotheses 16
1.6 Significance
of the Study 17
1.7 Scope
of the Study 19
1.8 Limitations
of the Study 20
1.9 Organization
of the Study 20
CHAPTER 2: REVIEW OF RELATED
LITERATURE
2.1 Conceptual
Literature 22
2.1.1 Foreign
aid 22
2.1.2 Historical
perspective of foreign aid 24
2.1.3 Types
of foreign aid 25
2.1.4 Sources
of foreign aid 26
2.1.4.1 Bilateral
aid 27
2.1.4.2 Multilateral
aid 28
2.1.4.3 International
monetary fund (IMF) 29
2.1.4.5 World
bank 30
2.1.4.6 African
development bank (ADB) 31
2.1.4.7 United
nations agencies 31
2.1.5 Foreign
development assistance in Ghana 32
2.1.6 Sectoral
utilization of foreign aids in Ghana 35
2.1.6.1 Agricultural sector 35
2.1.6.2 Health
sector 37
2.1.6.3 Education
sector 39
2.1.7 Foreign
aid and the Nigerian economy 40
2.1.8 Foreign
aid received by Nigeria (US $) 44
2.1.9 Public
expenditure 46
2.1.10 Nexus
between ODA and public expenditure 48
2.2 Theoretical
Literature Review 51
2.2.1 The
Dependency theory of underdevelopment 52
2.2.2 Adolph
Wagner’s law of increasing state activity 55
2.2.3 The
Peacock and Wiseman’s model 57
2.2.4 Big
push theory 58
2.2.5 Rostow-Musgrave
public expenditure model 60
2.3 Empirical
Literature Review 62
2.4 Summary
of Reviewed Empirical Literature 77
2.5 Identified
gap in literature reviewed 88
CHAPTER 3: RESEARCH METHODOLOGY
3.1 Research
Design 91
3.2 Theoretical
framework 92
3.3 Model
Specification 94
3.4 Estimation
Techniques 103
3.5 The
Diagnostic Test 106
3.6 Data
and Sources 108
3.7 Description
of Variables in the Models 108
3.8
Software application 110
CHAPTER 4: DATA PRESENTATION AND
ANALYSIS OF RESULTS
4.1 Descriptive
Statistics (Nigeria) 111
4.1.2 Unit
root test 117
4.1.3 ARDL
bound test 121
4.1.4 ARDL
error correction 123
4.1.5 ARDL
Short Run for Nigeria 124
4.1.6 ARDL
long run for Nigeria 128
4.1.7 ARDL
short run for Ghana 130
4.1.8 ARDL
long run for Ghana 134
4.1.9 Comparative
analysis between Nigeria and Ghana 136
4.2
Discussion of Results 138
4.3
Post Estimation Test Result 142
4.4 Test
of Research Hypotheses 145
4.5 Economic
implications of result 148
CHAPTER 5: SUMMARY OF FINDINGS,
CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings 151
5.2 Conclusion 153
5.3 Recommendations 155
References 158
Appendices 168
LIST
OF TABLES
2.4.1a Summary of empirical literature 77
2.4.1b Summary of empirical literature continued 78
2.4.1c Summary of empirical literature continued 79
2.4.1d Summary of empirical literature continued 80
2.4.1e Summary of empirical literature continued 81
2.4.1f Summary of empirical literature continued 82
2.4.1g Summary of empirical literature continued 83
2.4.1h Summary of empirical literature continued 84
2.4.1i Summary of empirical literature continued 85
2.4.1j Summary of empirical literature continued 86
2.4.1k Summary of empirical literature continued 87
4.1
Descriptive Statistics 112
4.1.1 Descriptive
statistics for Ghana 115
4.1.2: ADF unit root {Nigeria & Ghana} 118
4.1.3:
Auto regressive distributed lag model bound test 122
LIST
OF FIGURES
2.1:
Foreign Aids Received by Nigeria from 1999 to 2020 45
CHAPTER
1
INTRODUCTION
1.1
BACKGROUND
TO THE STUDY
Aid
is a multifaceted concept encompassing various modalities, including bilateral
and multilateral assistance, nonprofit contributions, humanitarian relief,
emergency relief, food aid, technical support, and more. Therefore, it is
imperative to establish a precise definition of aid within the context of this
study. Foreign aid is characterized as the international transfer of resources
from one nation to another, often in the form of loans or grants (Todaro 2009).
Such transfers can take the form of bilateral agreements, multilateral
collaborations, or private assistance from non-governmental organizations.
Bilateral
aid signifies a mutual exchange, with one government providing aid directly to
another. In contrast, multilateral aid involves a collective effort, with a
group of nations or organizations offering assistance to a specific country
(Todaro 2009). Although there are diverse interpretations of aid, this study
defines aid as all international payments facilitated through bilateral,
multilateral, or non-governmental channels. These international payments
encompass loans offered on favorable terms or outright grants.
The
debate over the relative effectiveness of bilateral and multilateral aid
persists. Multilateral aid often appears to have more altruistic motives, yet
aid, regardless of its form, is generally driven by altruism (Ram 2003).
However, bilateral aid tends to be more self-interested, as donor countries may
pursue their own strategic and economic interests. Additionally, donor nations
frequently extend support to countries with which they share cultural and
strategic ties, such as historical connections, trade relations, or political
affiliations (Ram 2003). In contrast, multilateral assistance tends to have a
greater impact in recipient countries, particularly in situations where
emergency aid is urgently required (Cassen 1994).
While
studies examining the relationship between aid and economic growth have
produced varied outcomes, no definitive conclusions have been reached. Some
investigations have indicated a positive and significant impact, while others
have found no significant effect, and a few have even suggested an adverse
impact of foreign aid on the growth of developing countries. Papanek (1973)
observed a notably positive influence of aid on growth, a result echoed by
Stoneman (1975) and Gupta (1975), who arrived at similar findings based on a
broader dataset encompassing a larger sample of Less Developed Countries
(LDCs). Hadjimichael (1995) pointed out that the positive link between aid and
growth is contingent upon the specific estimation technique employed. Lloyd
(2001) noted that aid affects long-term private consumption, but its marginal
impact on exports is comparatively less pronounced. Dalgaard, et al 2004
demonstrated that aid injections enhance steady-state productivity in recipient
nations by increasing the per capita capital stock. Roodman (2004) also
identified various determinants of the aid-growth nexus, including governance,
domestic policies, historical circumstances, and external conditions associated
with aid transfers. Burnside and Dollar (2000) conducted an intriguing
third-generation study, indicating that the effectiveness of aid in promoting
economic growth in developing countries hinges on the favorability of the
policy environment. Collier et al 2004 empirically substantiated the
effectiveness of aid when administered within a conducive policy framework.
Conversely,
some scholars and researchers have questioned the significance of foreign aid
in development, presenting a range of political, economic, and strategic
arguments to support their case. Boone (1996) famously referred to aid as being
poured "down the rat hole." According to Bauer (1991), aid often
bolsters a government's political power, resources, and patronage at the
expense of the marginalized segments of society, potentially leading to
political instability. This viewpoint is corroborated by Dollar and Easterly’s
(1999) findings that aid fails to increase investments in Africa. Other
studies, such as Burnside and Dollar (1997, 2000) and Alesina and Dollar
(2000), have also suggested that aid is ineffective in fostering growth in
recipient countries, particularly in Africa.
On
the other hand, public expenditure, as defined by Aigheyisi (2013), encompasses
the financial commitments made by the government to sustain its operations and
provide goods and services aimed at fostering economic growth and enhancing the
well-being of society. The government extends its support to citizens through
the provision of essential services such as healthcare facilities, transfer
payments, education, infrastructure, and more, enabling individuals to make a
livelihood within the country. Public expenditure can generally be categorized
into various sectors, including administration, defense, internal security,
health, education, foreign affairs, and others. These expenditures across
different sectors can be broadly classified into two categories: Capital
expenditures and Recurrent expenditures (Aigheyisi, 2013).
Capital
expenditures refer to the funds allocated for acquiring fixed (productive)
assets, including those with a useful life extending beyond the fiscal year. It
also covers expenses incurred in upgrading existing fixed assets, such as
lands, buildings, and roads (Aigheyisi, 2013). On the other hand, Recurrent
expenditure involves spending on the purchase of goods and services, wages and
salaries, operational costs associated with running government agencies, as
well as current grants and subsidies, often classified as transfer payments.
In
Nigeria, public expenditure has been steadily increasing due to several
prevailing issues, including poverty, youth unemployment, underdevelopment,
regional separatist agitations, gross income inequality, terrorism, and
macroeconomic instability affecting all sectors of the economy. Statistically,
the nation has witnessed a significant rise in public expenditure, accompanied
by a widening gap in public debt. For instance, Nigeria's public expenditure
surged from ₦16.99 billion in 1984 to ₦18.99 billion in 1985. Subsequently, the
country saw a substantial increase in public expenditure, reaching ₦93.60 billion
in 1991, alongside a proportional increase in GDP by 351.4. Between 1991 and
1992, public expenditure rose from ₦129.86 billion in 1991 to ₦235.78 billion
in 1994. The period leading up to the commencement of civilian rule (1994-1999)
witnessed a significant increase of 398.8%, reaching ₦1.18 trillion (CBN,
2013).
During
the first civilian regime from 1999 to 2003, total public expenditure increased
from ₦118 billion to ₦251 billion, while the period from 2003 to 2007 witnessed
a further rise, from ₦251 billion in 2003 to ₦539 billion in 2007 (Central Bank
of Nigeria, 2013). Subsequent years also saw incremental growth in public
expenditure, with the period from 2007 to 2011 witnessing an increase from ₦539
billion in 2007 to ₦944 billion in 2011. Additionally, between 2012 and 2013,
public expenditure grew from ₦3,325.2 billion to ₦3,689.1 billion. The upward
trajectory in public expenditure continued through 2016 and 2017, with
expenditures reaching a new high of 426.9 billion naira and 3,831.9 billion
naira, respectively. Further increases in public expenditure occurred between
2018 and 2019, rising from 5,675.2 billion naira to 6,997.2 billion naira. More
recently, in 2020 and 2021, there were further increases, especially in
response to the economic challenges posed by the pandemic, with public
expenditure rising from 8,188.8 billion naira to 9,145.2 billion naira (CBN,
2021).
On
another note, the Ghanaian economy has also witnessed significant growth in
public expenditure during various periods of both military and civilian
administration. Following the first military coup of 1966–1969, which ushered
in the first military rule in Ghana, total public expenditure surged notably
from ₡19.8 million to ₡28.5 billion. Subsequently, the second coup (military
regime) of 1972–1975 saw public expenditure increase from ₡35.5 million to
₡68.9 million (Bank of Ghana, 2021).
The
fourth military government, spanning from 1981 to 1993, reviewed the public
expenditure of the country, resulting in an increase from ₡638 million to ₡52.9
billion. Moreover, the transition to civilian administration in the economy was
marked by a further surge in public expenditure between 1993 and 2014,
escalating from ₡55.9 billion to ₡172 billion. The years 2015–2016 also
witnessed an upward trajectory, with public expenditure rising from ₡37,344.58
billion to ₡51,125.04 billion. In the period spanning from 2017 to 2018, public
expenditure in the country rose from ₡51,985.95 billion to ₡58,196.96 billion,
as reported by the Bank of Ghana (2021).
The
economic challenges posed by the COVID-19 global health crisis prompted the
government of Ghana to adopt a more aggressive approach to increase public
expenditure, aimed at mitigating the devastating humanitarian and economic
impacts of the virus. Consequently, public expenditure was raised to
₡109,275.89 billion in 2019 and ₡96,400.43 billion in 2021, during the peak of
the pandemic. Subsequently, the economy saw a reduction in spending to
₡67,856.11 billion the following year (Bank of Ghana, 2022).
Despite
government policies aimed at better utilizing foreign aid to improve the
economic prospects of both nations, challenges persist. In Nigeria, various
initiatives were introduced, such as the National Accelerated Food Production
Programme (NAFPP) in 1973, the Nigerian Bank for Commerce and Industry (NBCI)
in 1973, Operation Feed the Nation (OFN) in 1976, and the establishment of the
Agricultural Credit Guarantee Scheme (ACGS) Fund Act in 1977. The structural
adjustment program (SAP) launched in 1986 aimed to diversify and promote
private sector participation in the country's economic activities.
Additionally, Primary Health Care Centres were introduced in 1988, and the
Polio Eradication Programme of 1988 sought to combat the polio epidemic in the
country. However, despite these efforts, the poverty gap widened, and Nigeria
was labeled the world's poverty capital in 2020.
Similarly,
Ghana launched the Economic Recovery Program (ERP) in 1983 to stimulate
economic growth and development. The Enhanced Structural Adjustment Facility
(ESAF) was initiated in 1995 to address inflationary pressures in 1992. In
1997, a fiscal adjustment plan was introduced to restore budgetary discipline.
It is evident that despite well-structured objectives aimed at revitalizing the
economic fortunes of both nations, the expected outcomes were not realized,
despite decades of increased public spending with diverse inflows of foreign
aid.
On
another note, the Ghanaian economy has also witnessed significant growth in
public expenditure during various periods of both military and civilian
administration. Following the first military coup of 1966–1969, which ushered
in the first military rule in Ghana, total public expenditure surged notably
from ₡19.8 million to ₡28.5 billion. Subsequently, the second coup (military
regime) of 1972–1975 saw public expenditure increase from ₡35.5 million to
₡68.9 million (Bank of Ghana, 2021).
The
fourth military government, spanning from 1981 to 1993, reviewed the public
expenditure of the country, resulting in an increase from ₡638 million to ₡52.9
billion. Moreover, the transition to civilian administration in the economy was
marked by a further surge in public expenditure between 1993 and 2014,
escalating from ₡55.9 billion to ₡172 billion. The years 2015–2016 also
witnessed an upward trajectory, with public expenditure rising from ₡37,344.58
billion to ₡51,125.04 billion. In the period spanning from 2017 to 2018, public
expenditure in the country rose from ₡51,985.95 billion to ₡58,196.96 billion,
as reported by the Bank of Ghana (2021).
The
economic challenges posed by the COVID-19 global health crisis prompted the
government of Ghana to adopt a more aggressive approach to increase public
expenditure, aimed at mitigating the devastating humanitarian and economic
impacts of the virus. Consequently, public expenditure was raised to
₡109,275.89 billion in 2019 and ₡96,400.43 billion in 2021, during the peak of
the pandemic. Subsequently, the economy saw a reduction in spending to
₡67,856.11 billion the following year (Bank of Ghana, 2022).
Despite
government policies aimed at better utilizing foreign aid to improve the
economic prospects of both nations, challenges persist. In Nigeria, various
initiatives were introduced, such as the National Accelerated Food Production
Programme (NAFPP) in 1973, the Nigerian Bank for Commerce and Industry (NBCI)
in 1973, Operation Feed the Nation (OFN) in 1976, and the establishment of the
Agricultural Credit Guarantee Scheme (ACGS) Fund Act in 1977. The structural adjustment
program (SAP) launched in 1986 aimed to diversify and promote private sector
participation in the country's economic activities. Additionally, Primary
Health Care Centres were introduced in 1988, and the Polio Eradication
Programme of 1988 sought to combat the polio epidemic in the country. However,
despite these efforts, the poverty gap widened, and Nigeria was labeled the
world's poverty capital in 2020.
Similarly,
Ghana launched the Economic Recovery Program (ERP) in 1983 to stimulate
economic growth and development. The Enhanced Structural Adjustment Facility
(ESAF) was initiated in 1995 to address inflationary pressures in 1992. In
1997, a fiscal adjustment plan was introduced to restore budgetary discipline.
It is evident that despite well-structured objectives aimed at revitalizing the
economic fortunes of both nations, the expected outcomes were not realized,
despite decades of increased public spending with diverse inflows of foreign
aid.
Studies
on foreign aids and economic growth nexus have dominated empirical and
theoretical sphere of studies. Examples are: Yohannes et al 2021 focused on
foreign aids and economic growth in Ethiopia; Javid and Qayyum (2021) examined
the effectiveness of aid in Zimbabwe from 1990-2010; Tracy (2021) examined the
impact of foreign aid on investment and economic growth in Nigeria over the
period 1970 to 2009 using multivariate co-integration analysis; Feeny (2020),
investigated the impact of foreign aid on economic growth in Papua New Guinea
and , Kargbo (2019) investigated the impact of foreign aid on economic growth
in Sierra Leone from 1970 to 2007.
The
present study therefore takes a diverging approach by elucidating the impact of
foreign aids on public expenditure between Nigeria and Ghana from 1981 to 2021,
while adopting a comparative approach following dearth on studies relating to
foreign aids and public expenditure in both economies. The study also
incorporates definitive forms of foreign aids such as; bilateral aids;
multilateral aids; technical grants; and official development assistance to
analyze the degree of influence foreign aids has on public expenditure which no
known study has adopted to investigate foreign aid and public expenditure
between Nigeria and Ghana.
Research
on the relationship between foreign aid and economic growth has been a
prominent topic in both empirical and theoretical studies. Several examples
include Yohannes, Hudson, and Horrell (2021), who focused on the impact of
foreign aid on economic growth in Ethiopia. Similarly, Javid and Qayyum (2021)
conducted a study examining the effectiveness of aid in Zimbabwe from 1990 to
2010. Tracy (2021) analyzed the influence of foreign aid on investment and
economic growth in Nigeria, covering the period from 1970 to 2009, utilizing multivariate
co-integration analysis. Feeny (2020) investigated the effects of foreign aid
on economic growth in Papua New Guinea, and Kargbo (2019) explored the impact
of foreign aid on economic growth in Sierra Leone from 1970 to 2007.
In
contrast, the current study takes a different approach by examining the impact
of foreign aid on public expenditure in Nigeria and Ghana from 1981 to 2021.
This study adopts a comparative approach, which is less explored in the
existing literature, given the limited studies on foreign aid and public
expenditure in both economies. Additionally, this study encompasses various
forms of foreign aid, including bilateral aids, multilateral aids, technical
grants, and official development assistance. This comprehensive analysis aims
to determine the extent of foreign aid's influence on public expenditure, an
aspect that has not been widely investigated in previous research pertaining to
foreign aid and public expenditure in Nigeria and Ghana.
1.2
STATEMENT OF THE PROBLEMS
Foreign
aid plays a crucial role in supporting economies, enabling them to embark on a
path of growth and fostering a multitude of activities that enhance economic
performance while addressing specific issues such as job creation, income
inequality reduction, poverty eradication, and the promotion of social harmony
and progress. According to Shahzad, Ahmed, Khiliji, and Ahmed (2011), foreign
aid is particularly valuable for addressing financial constraints, facilitating
trade, and tackling strategic challenges that arise due to limited local
resources.
This
need for foreign aid becomes evident when we examine the economic challenges
faced by developing nations like Nigeria and Ghana. As of November 2022, Ghana
grappled with a substantial debt burden of $29.2 billion USD, accompanied by an
average youth unemployment rate of 10.4%. Meanwhile, Nigeria faced an even more
staggering youth unemployment rate of 41%. These alarming statistics can be
attributed to various factors, including government mismanagement, a culture of
embezzlement within the political class, severe mismanagement in the industrial
sector, and insufficient productivity in agriculture.
In
light of these circumstances, both Nigeria and Ghana find themselves heavily
reliant on Western aid to sustain their economies. Nigeria and Ghana have both
been recipients of foreign aid through a series of multilateral and bilateral
agreements. Nigeria's net foreign government development aid stood at 3.9331
percent in 2005, 4.9390 percent in 2006, and 0.7425 percent in 2007. However,
since then, the Official Development Assistance (ODA) for Nigeria's economy has
shown a consistent decline, from 0.4019 percent in 2008 to 0.5911 percent in
2009 and further down to 0.4731 percent in 2010. Notably, ODA witnessed a
decrease of 0.8114 percent between 2016 and 2015. The trend reversed in 2017
with a slight increase of 0.9311 percent, while the years 2018, 2019, and 2020
maintained a steady 0.99 percent. In 2021, there was a minor uptick to 0.98
percent. On the other hand, Ghana experienced fluctuations in ODA inflows,
peaking at 2.1573 percent in 2005 and gradually rising to 3.6945 percent the
following year. However, it then gradually decreased to 2.4436 percent in 2007.
Official
Development Assistance inflows remained relatively stable at 2.2001 percent in
2008, followed by 1.6604 percent in 2009 and 1.3905 percent in 2010. The year
2011 saw an increase to 3.1142 percent. Interestingly, ODA exhibited
substantial growth in 2020, 2021, and 2022, contributing to a reduction in the
disparity (WDI, 2023). Over the past decade, Ghana's economy has experienced
volatility due to changes in economic, environmental, and political factors.
The GDP deficit increased from 3.60 percent in 1999 to 3.70 percent in 2000.
GDP growth averaged 0.30 percent annually between 2001 and 2013, with notable
gains of 0.50 percent in 2002, 0.70 percent in 2003, and 0.40 percent in 2004.
However, there were periods of reduced GDP growth in 2012 (4.75 percent), 2013
(1.98 percent), 2014 (4.46 percent), and 2015 (0.074 percent). Subsequently,
the economy rebounded with an expansion of 3.37 percent in 2016, 4.76 percent
in 2017, 1.9 percent in 2018, and 5.99 percent in 2020, followed by 4.8 percent
in 2021 as it began to recover from the pandemic (Macrotrends, 2022). In stark
contrast, Nigeria has faced severe challenges, including poverty, income
inequality, insecurity, and political corruption. In recent years, Nigeria has
earned the unfortunate moniker of "The World Capital of Poverty." Despite
increased public spending resulting from bilateral, multilateral, foreign
grants, and official development aid (ODA), the Nigerian economy has not
enjoyed sustained growth, as depicted in the accompanying graphic.
Additionally,
Nigeria's total government expenditure during different periods includes
$2,182,643,970 from 1981 to 1985, $785,264,422.1 from 1986 to 1990,
$657,400,203.6 from 1996 to 2000, $801,921,878.6 from 2001 to 2005,
$3,656,991,612 from 2006 to 2010, and $31,258,907,794 from 2011 to 2017. In contrast,
Ghana's public spending increased from $322,837,696.9 between 1981 and 1985 to
$548,710,592.3 between 1986 and 1990, and further to $760,586,401.1 between
1996 and 2000, and $945,942,405.1 between 2001 and 2005, with a significant
rise to $2,130,850.327 between 2006 and 2010. The most recent data shows an
expenditure of $5,384,218.514 between 2020 and 2021 (WDI, 2022). Both economies
have witnessed an upward trajectory in public spending, prompting inquiries
into whether these increases have resulted in enhanced economic performance.
Economically,
Nigeria faced significant challenges in the past decade. Between 2000 and 2002,
economic growth fluctuated from 5.02 to 4.43 to 9.41 percent. The GDP exhibited
fluctuations from 2003 to 2016, experienced growth from 2017 to 2019, but
declined again in 2020 due to the impact of the COVID-19 pandemic (Macrotrends,
2022). Recent studies have suggested that aid can positively impact GDP growth,
investment, poverty reduction, and government spending, as demonstrated by
Yohannes et al 2021; Javid and Qayyum (2021); Swaroop et al 2021; Fasanya and
Onakoya (2020); and Tracy (2021).
To
address gaps in existing knowledge, this study employs a comparative approach
to examine the influence of foreign aid on public spending in Nigeria and Ghana
from 1981 to 2022. This research aims to uncover how various forms of Official
Development Assistance (ODA) affect public spending, which serves as a crucial
driver of economic expansion. Unlike prior empirical studies that often overlooked
the origins and long-term sustainability of public expenditure, this study
delves into the impact of foreign aid on budgets in both countries.
While
earlier research explored how foreign aid affects economic growth across
nations over time, the present study focuses on how different aspects of
foreign aid influence public spending in Nigeria and Ghana from 1981 to 2022.
This research assesses the impact of government grants from abroad on the
fiscal plans of both countries. By analyzing the functional relationship within
annual observations and utilizing cross-sectional data spanning from 1981 to
2022 for Nigeria and Ghana. The Country Nigeria is located in
West Africa. It has many natural landmarks and wildlife
reserves. Nigeria
has a land area of 924,000km2 and a population of 140,003,54 2
million (National Population Commission, 2007). The country’s economy is
characterized by a large rural, mostly agricultural based traditional sector
and a smaller, largely urban, more capital intensive sector. Although the
country relies heavily on the petroleum sector which generates over half of
government revenue and more than 90 per cent of foreign exchange earnings,
agriculture continues to play a focal role in the economy. Prior to the oil
boom (1970s and 1980s), Nigeria was a major exporter of a range of agricultural
commodities.
Nigeria now has to import large
quantities of food with wheat and rice being the major crops imported. Small
scale farming is the predominant form of production and between 90 to 95 per
cent of the total output is accounted for by households that cultivate about
2ha (0.5ha in the south and over 4ha in the north) of land. Deficiency of
annual rainfall is the main constraint to agriculture in the north but, more
importantly, the distribution in space and time and dependability of the
rainfall is a constraint over most of the country (African Development Bank,
2006). Nigeria is endowed with vast and largely untapped natural resources,
including such minerals as petroleum, limestone, tin, columbite, kaolin, gold
and silver, coal, lead, zinc, gypsum, clay, shale, marble, graphite, iron-ore,
stone, zircon and natural gas.
B. Ghana
Ghana
is one of the best performing economies in the West African region. It is well
endowed with natural resources and has roughly twice the per capita output of
the poorest countries in the region. Ghana has a Gross Domestic Product (GDP)
of $18.06 billion with growth rate of 4.7% and per capita GDP of $1600.7. The
domestic economy revolves around agriculture, which accounts for about 35% of
GDP and employs 55% of the workforce.
Ghana’s primary cash crop is cocoa, which typically provides about
one-third of all export revenues. Other products include timber, coconuts and
other palm products, shea nuts and coffee (Awoluse, 2019)
The major natural resources are gold, oil, diamonds,
bauxite and manganese and fish. The major industries are mining, lumber, light
manufacturing, fishing, aluminium, and tourism.
Ghana has since independence been at the forefront of the schemes to
have one form or another of integration in Africa. Dr. Kwame Nkrumah, Ghana’s
first President had called for the political Union of Africa. Ghana was
instrumental in the formation of the Organisation of African Unity (OAU) in
1963 and also was at the forefront in the formative years of the ECOWAS (Edoumiekumo and Opukri, 2013).
Export trade plays important role in the development
of Ghana Economy. In 2010, $7.33 billion worth of products from Ghana were
exported to its export trading partners. These products include gold, cocoa,
timber, industrial diamonds, manganese ore, tuna. The country’s import was
$10.18 billion in 2010.9 The products imported include petroleum, food,
industrial raw materials, machinery, and equipment from its major trading partners
like Nigeria, China, United States, United Kingdom, Netherlands, Cote D’voire,
France and India. Ghana’s industrial base is relatively advanced compared to
many other African countries.
In
the other hand, Ghana, a country located on the
western coast of Africa, boasts a diverse landscape and a vibrant population.
Its land area spans approximately 239,567 square kilometers (92,497 square
miles), encompassing a variety of terrains, from coastal savannas to tropical
rainforests. The country's population is estimated to be over 34 million, with
a population density of approximately 150 people per square kilometer (388
people per square mile). Ghana's landmass is characterized by a coastal plain
that gradually ascends into a plateau region in the north. This topography
provides a range of habitats for diverse flora and fauna, with savannas
covering the southern regions and tropical rainforests extending into the
interior. The Volta River, one of Africa's largest rivers, traverses the
country, irrigating fertile lands and serving as a vital transportation route.
The majority of Ghana's population resides in the
southern regions, with Accra, the capital city, serving as the most populous
urban center. The country's population is predominantly young, with a median age
of 20.7 years. The Akan ethnic group forms the largest demographic group,
followed by the Ewe, Ga, Mole-Dagbani, Gurma, and Guan groups. Ghana's economy
is primarily based on agriculture, mining, and industry. Cocoa, a renowned
export crop, plays a significant role in the agricultural sector. Gold,
diamonds, and manganese contribute significantly to the mining industry, while
oil and gas exploration has emerged as a new economic driver. Manufacturing,
particularly in the textiles and food processing sectors, is also gaining
traction.
The country’s rich cultural heritage is manifested through its diverse
ethnic groups, each with its unique traditions, languages, and artistic
expressions. Festivals, music, and dance play a central role in Ghanaian
culture, with events like the Homowo festival showcasing the vibrant cultural
tapestry of the country. It is on the basis of such economic; political and
socio-cultural diversity that the both Nations were selected. This study would
therefore provide further insights foreign grants,
multilateral aid, bilateral aid, technical cooperation aid, and foreign
official development aid impact on accelerating government expenditure over the
study scope.
1.3 RESEARCH QUESTIONS
The study is guided by the following questions;
i.
What is the impact of
Foreign Grant on Public Expenditure in Nigeria and Ghana?
ii.
To what extent do Foreign
Technical Cooperation Aids impact on Public Expenditure in Nigeria and Ghana?
iii.
What is the economic
impact of Official Development Assistance Aids on Public Expenditure in Nigeria
and Ghana?
iv.
To what extent do
Multilateral Aids impact on Public Expenditure in Nigeria and Ghana?
1.4 OBJECTIVES OF THE STUDY
The
main objective of this study was to examine impact of foreign aid on public
expenditure; A comparative study of Nigeria and Ghana. While the specific
objectives drafted to address the research, questions formulated in this regard
are:
i.
Analyzed the impact of
Foreign Grant on Public Expenditure in Nigeria and Ghana.
ii.
Determined the impact of
Foreign Technical Cooperation Aids on Public Expenditure in Nigeria and Ghana.
iii.
Examined the impact of
Official Development Assistance Aids on Public Expenditure in Nigeria and
Ghana.
iv.
Ascertained the impact of
Multilateral Aids on Public Expenditure in Nigeria and Ghana.
1.5 RESEARCH HYPOTHESES
The study
hypothesis is stated in null form (H0) and to be empirically assessed based on
the statistical threshold of 0.05% level of significance.
Ho1: Foreign Grant has no significant impact on
Public Expenditure in Nigeria
and Ghana.
Ho2: Foreign Technical Cooperation Aids has no
significant impacts on Public Expenditure
in Nigeria and Ghana.
Ho3: Official Development Assistance Aids has no
significant impact on Public Expenditure
in Nigeria and Ghana.
Ho4: Multilateral Aids has no significant impacts
on Public Expenditure in Nigeria and Ghana.
1.6 SIGNIFICANCE
OF THE STUDY
Even
though inclusive growth and development through increased public capital and
recurrent expenditure on economic fronts has been the broad objectives of most
countries in Africa, with special reference to Nigeria and Ghana. Financial
constraints have been empirically pinpointed as a major obstacle to broad
government objectives towards poverty alleviation, gender equality and
inclusive growth, hence a study on foreign aids impact on public expenditure
would be of great significance to the general public; the government of Nigeria
and Ghana, future researchers and international donor organizations.
The
need to improve government financial prudence through increased accountability
remains sacrosanct with the development objectives of the United Nations sustainable
development goals, however, these objectives of zero hunger, no poverty, gender
equality etc. cannot be actualized without the involvement of the general
public who are often ignorant of government revenue bases and expenditure
structure across Nigeria and Ghana. Thus, this study would educate the general
public by the elucidation of the various means through which governments of
both countries earn internationally, highlighting significant bilateral and
multilateral sources of government revenue available for economic reasons in
Nigeria and Ghana. With this augmented knowledge, the good people of Nigeria
and Ghana, can vividly hold their government accountable, thereby acting as
check and balances to the government of their nations on issues of general
economic interest over time.
Also,
the government of the federal republic of Nigeria and Ghana, both West African
origins and among top receivers of international aids, would be able to draw
the line on the impact of foreign aids on its developmental agenda. This is
because, this study would question the reliance of government on foreign aids
in financing domestic economic over heads in the light of economic imperialism
and its persistent poverty among the Nations in question. More so, the study
would question government policies towards the open-minded acceptance of
foreign aids and their terms that have further enslaved African countries in
the light of industrial backwardness in Nigeria and Ghana. This knowledge would
aid governments of both countries to enact and pursue economic policies that
would facilitate the growth and development of the activity sector in both
countries, thereby engendering increased economic growth and breaking off from
gross reliance on foreign aids for domestic survival in Nigeria and Ghana.
Furthermore,
the study presents a unique empirical investigation domiciled within the
confinement of foreign aids and public expenditure, a direct deliberate
divergence from the common trends on investigations linking foreign aids inflows
to economic growth. Thus, future researchers would benefit from this rare
nexus, by further banking on the empirical assertions, theoretical and
conceptual reviews of this study to inform their investigation. More so, the
current study would provide background information to future researchers on the
very link between foreign aid and public findings in Nigeria and Ghana, with a
view to analyzing further in the areas of the effect foreign aids have on
sectoral expenditure of government in Nigeria and Ghana.
Additionally,
the empirical results obtained from this fact based analysis on foreign aids
and public expenditure between Nigeria and Ghana would be of great importance
to international donors, like the United Nations agencies – united nations
development program (UNDP) and united nations educational, scientific and
cultural organization (UNESCO) in fostering and mapping out foreign aids
structure for developing countries across Africa, with special emphasis on
Nigeria and Ghana.
1.7 SCOPE
OF THE STUDY
The
study is a comparative approach to examining the impact of foreign aids on
public expenditure between Nigeria and Ghana for a robust period of forty-one
years (1981-2021). The choice of this wide range of empirical analysis is to
enable the researcher have a gross overview of the historical trends of foreign
aids inflows in comparison with public expenditure over time in both West
African economies.
The
geographical consideration of the study is West Africa with Nigeria and Ghana
in view, while the study will implore cross sectional data between Nigeria and
Ghana as most appropriate following the geographical constraints. Variables
wise, the study would regress Public Expenditure growth (PUBEXGR) to be
obtained from central bank of Nigeria and that of Ghana’s bulletin for the year
2022 against foreign technical cooperation aids (FTECH), foreign grants
(FGRANT), official development assistance (FODA), multilateral foreign aids
(MFAID), exchange rate (EXR) and Inflation Rate (INFR) to be extracted from
world development indicator for Nigeria and Ghana 2022 publication.
Also,
the study would implore the use of econometric views version 12 to carry out
empirical analysis. Panel unit root test of statistical stationarity of the
variables would be regressed, panel long run analysis, panel auto regressive
distributed lag (ARDL) to determine the impact of foreign aids on public
expenditures in the short run and in the long run.
1.8
LIMITATIONS OF THE STUDY
1.
Lack of
Comprehensive Aid Conditions Analysis: The study mentions the conditions
attached to foreign aid but does not delve deeply into their specifics or how
they might vary across donors and time periods.
2.
Limited Scope: The
analysis covers the period from 1981 to 2021,
which might not capture more recent developments in
foreign aid practices and their impact on public expenditure.
3.
Singular
Focus on Quantitative Data: The study primarily relies on quantitative data and
statistical analysis, potentially overlooking qualitative aspects and the
broader socio-political context in which aid operates.
4.
Absence of
Counterfactual Analysis: The research doesn't explore what might have happened
in the absence of foreign aid, which could provide a more robust assessment of
its impact.
5.
Limited
Generalizability: Findings may not be directly transferable to other countries
due to Nigeria's unique economic and political circumstances.
1.9 ORGANIZATION
OF THE STUDY
The
study is organized into five chapters. Chapter one comprises of – introduction;
statement of research problems; objectives of the study; research questions;
research hypothesis; significance of the study, scope of the study and
organization of the study. Chapters two convers – review of related literatures
with headings relating to – conceptual framework; theoretical literature
review; empirical literature reviews; summary of empirical literatures and
identified gap in empirical literature reviewed. Chapters three presents the
research methodology adopted for the study, with emphasis on– research design;
theoretical framework; model specification; apriori expectation; estimation
techniques; source of data; data description and software applications. Chapter
four details analysis and discussion of result; while chapter five incorporates
summary of findings; recommendations and conclusion.
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