FOREIGN AID EFFECTIVENESS IN POVERTY REDUCTION IN NIGERIA: THE ROLE OF INSTITUTIONAL QUALITY

Abstract

This study examines the effectiveness of foreign aid in reducing poverty in Nigeria, with a particular focus on the moderating role of institutional quality. The study used Two-Stage Least Squares (TSLS) estimation method and covered the period 1990 to 2023. The results show that foreign aid does not have a significant impact on poverty in Nigeria and none of the institutional quality indicators significantly affects poverty. However, the results showed that foreign direct investment has a significant positive impact on poverty rate, while inflation has a negative significant relationship with poverty; and exchange rate also showed a positive significant relationship with poverty. The study concludes that institutional quality is not too relevant when it comes to the effectiveness of foreign aid in reducing poverty. Furthermore, foreign aid has no significant relationship with poverty, while foreign direct investment is the most effective in reducing poverty. To reduce poverty in Nigeria, the study recommends that government should reduce its reliance on foreign aid as a means of poverty alleviation; rather than seeking aid, policymakers should develop strategies to attract more foreign investors into the country, and the government should work on the macroeconomic objectives of price stability and exchange rate stability.