Impact of Institutional Quality on Multilateral Aid in Nigeria

Source:
By:Ezebuilo Romanus Ukwueze, Uchenna Casmir Ugwu, Ogochukwu Anastasia Okafor

DOI: https://doi.org/10.30564/jesr.v4i4.3116

Abstract:

The linkage between quality of institutions and economic performance of nations has generated a lot of interest among scholars, due to their influence on development of many countries and effective use of resources including foreign aid from multilateral organizations. Two strands of theories emerge on the institutions-multilateral aids nexus: those for benefits of aid to growth and development; and those for harms caused by aid. The research objective is to investigate the impact of institutional quality on multilateral aid in Nigeria. To do this, the study applied auto-regressive distributed lag (ARDL) bounds testing approach. Data for the study were sourced from the ICRG data, WGI data, QoG database, Transparency International, and World Development Indicators (WDI). The findings show that institutional quality variables do not have any influence on the multilateral aid in Nigeria, except the ‘independence of judiciary’ which appeared statistically significant. In the short-run analysis, the disequilibrium in the long-run equilibrium is corrected for in the next quarter period by about 25%; almost all the variables are statistically and significantly influencing multilateral aid. It is therefore recommended that donor agencies should consider other factors that negatively influence official development assistance (ODA) such as politics, location and colonial history.

References:

[1]Ogundipe, Adeyemi A.; Ojeaga, Paul and Ogundipe, Oluwatomisin M. (2014). Is Aid Really Dead? Evidence from Sub-Saharan Africa, International Journal of Humanities and Social Science, Vol. 4, No. 10(1); August 2014, pp.300-314. [2]OECD (2015) Multilateral Aid 2015: Better Partnerships for a Post-2015 World. Paris: OECD. [3]Charron, Nicholas (2009). Exploring the impact of foreign aid on corruption: Has the ‘Anti-Corruption’ aid been effective? QoG Working Paper Series, 29, The Quality of Government (QoG) Institute, University of Gothenburg. [4]Olanrele, Iyabo A. and Ibrahim, Taofik Mohammed (2015). Does Developmental Aid Impact or Impede on Growth: Evidence from Nigeria, International Journal of Economics and Financial Issues, Vol. 5, No. 1, 2015, pp.288-296. [5]Thorbecke, E. (2013). Institutions for inclusive growth and development in sub-Saharan Africa. A paper presented at the JICA Conference, University of London. [6]Iheonu, C., Ihedimma, G., Onwuanaku, C. (2017). Institutional quality and economic performance in West Africa. Munich Personal RePEc Archive. Paper No. 82212. [7]Parks, B., Buntaine, M., Buch, B. (2017). Why developing countries get stuck with weak institutions and how foreign actors can help. www.google.com/ amp/s/www.brookings.edu. [8]Luiz, J.M. (2009). Institutions and economic performance: implications for African development. Journal of International Development. 21. [9]Fosu, A., Bates, R., Hoeffler, A. (2006). Institutions, governance and economic development in Africa: an overview. Journal of African Economies. 15 (1), 1-9. [10]Baliamoune, L.M. (2005). Institutions, social capital, and economic development in Africa: an empirical study. International Centre for Economic Research Working Paper No. 18. [11]Birdsall, N. (2007). Do no harm: aid, weak institutions and the missing middle in Africa. Development Policy Review. 25 (5), 575-598. [12]Charnock, G. (2009). Why do Institutions matter? global competitiveness and the politics of policies in Latin Amerika. Capital ve Class. 33 (2), 67-99. [13]Yıldırım, A. (2015). Institutional structure and international competitiveness: a review on Turkey. Unpublished Ph.D Thesis, Mugla: Muğla Sıtkı Koçman University, Institute of Social Sciences. [14]Epaphra, M., Kombe, A.H. (2018). Institutions and economic growth in Africa: evidence from panel estimation. Institute of Accountancy Arusha, Tanzania, February, 2018. [15]Owasanoye, B. (2019). Nigeria major contributor to Africa’s $90 billion illicit financial outflow. 2019 Africa Union (AU) anti-corruption day in Lagos. https://allafrica.com/stories/201907120008.html? [16]Sala-i Martin, X., and A. Subramanian (2003). Addressing the Natural Resource Curse: An Illustration from Nigeria, NBER Working Papers 9804, National Bureau of Economic Research, Inc. [17]Djankov, S., J. Montalvo, and M. Reynal-Querol (2008). The curse of aid, Journal of economic growth, 13(3), 169-194. [18]Acemoglu, D., S. Johnson, and J. Robinson (2004). Institutions as the Fundamental Cause of Long-Run Growth, NBER Working Papers 10481, National Bureau of Economic Research, Inc. [19]Dalgaard, C.-J., and O. Olsson (2006). Windfall Gains, Political Economy, and Economic Development, Discussion Paper 223, Working Papers in Economics. [20]Lipsey, R. G., & Lancaster, K. (1956). The general theory of second best, The review of economic studies, 24(1), 11-32. [21]Rosenstein-Rodan, P. N. (1943). Problems of industrialization of eastern and south-eastern Europe, The Economic Journal, 53(210/211), 202-211. [22]Shleifer, A., and Vishny, R. (1989). Management Entrenchment: The Case of Manager Specific Investments, Journal of Financial Economics 25, 123-139. [23]Mosley, Paul, Hudson, John and Horrell, Sara (1987). Aid, the public sector and the market in less developed countries, Economic Journal, Vol. 97, Issue 387, 616-41. [24]Farah, A. (2009) Foreign aid and the ‘big push theory: Lessons from sub Saharan Africa, Stanford Journal of international relations. [25]Gulrajani, N. (2016). Bilateral and Multilateral Aid Channels: Strategic Choices for Donors, ODI Report. [26]Sippel, M. and Neuhoff, K. (2009) ‘A history of conditionality: lessons for international cooperation on climate policy’, Climate Policy, 9(5): 481-494 (http:// doi.org/10.3763/cpol.2009.0634). [27]Nunnenkamp, P. and Thiele, R. (2006). Targeting Aid to the Needy and Deserving: Nothing But Promises?TWEC World Economy, 29(9): 1177-1201. [28]Girod, D. (2008). Cut from the Same Cloth? Bilateral vs. Multilateral Aid, in Annual Meeting of the International Political Economy Society. Philadelphia. [29]Bratton, M., & van de Walle, N. (1997). Democratic experiments in Africa: Regime transitions in comparative perspective. Cambridge: Cambridge University Press. [30]Roniger, L. (1994). Civil society, patronage and democracy, International Journal of Comparative Sociology, 35 (3-4), 3-4. [31]Keefer, P. (2003). Clientelism, development, and democracy. Typescript: World Bank. [32]Robinson, James and Verdier, Thierry (2002). The political economy of clientelism, Scandinavian Journal of Economics 115(2), DOI: 10.1111/sjoe.12010. [33]Alesina, A., & Weder, B. (2002). Do corrupt governments receive less foreign aid? American Economic Review, 92 (4), 1126-1147. [34]Bauer, P. (2000). From subsistence to exchange. Princeton, NJ: Princeton University Press. [35]Bates, R. H. (1994). The impulse to reform in Africa. In J. A. Widner (Ed.), Economic change and political liberalization in Africa (pp. 13-28). Baltimore, MD: The Johns Hopkins University Press. [36]Collier, P. (1997). The failure of conditionality. In C. Gwyn (Ed.), Perspectives in aid and development. Washington, DC: Overseas Development Council. [37]Ahmed, F. Z. (2012). The perils of unearned foreign income: Aid, remittances, and government survival. American Political Science Review, 106 (1), 146- 165. [38]Brautigam, D. (2000). Aid, dependence, and governance, Stockholm: Almqvist and Wiksell. [39]Brautigam, D., & Knack, S. (2004). Foreign aid, institutions, and governance in sub-Saharan Africa. Economic Development and Cultural Change, 52 (2), 255-285. [40]Jablonski, R. (2014). How aid targets votes: The impact of electoral incentives on aid Distribution, World Politics, 66(2): 293-330. [41]World Bank. (2001). Aid and reform in Africa. Washington, DC: World Bank. [42]Van de Walle, N. (2001). African economies and the politics of permanent crisis, 1979-1999, New York: Cambridge University Press. [43]Easterly, W. (2002). The cartel of good intentions: the problem of bureaucracy in foreign aid, Journal of Policy Reform, 5 (4), 223-250. [44]Robinson, J. (2003). Politician-proof policy. Paper Prepared for World Bank 2004 World Development Report. [45]Clapham, C. (1996). Africa and the international system. Cambridge: Cambridge University Press. [46]Drometer, M. (2013). Institutional Quality and Foreign Aid, Ifo Institute for Economic Research at the University of Munich. [47]Younis, F. (2015). Institutional Quality, Foreign Aid and Economic Performance, Munich Personal RePEc Archive (MPRA), Online at https://mpra.ub.unimuenchen.de/74147/ MPRA Paper No. 74147, posted 30 September 2016 09:11 UTC. [48]Burnside, C., & Dollar, D. (2000). Aid, policies, and growth. American Economic Review, 90(4), 847- 868. [49]Durbarry, R., Gemmell, N., & Greenaway, D. (1998). New evidence on the impact of foreign aid on economic growth (No. 98/8). CREDIT Research paper. [50]Whitaker, M. T. (2006). The impact of foreign aid on economic growth.Bachelor of Arts in Economics Thesis Submitted to the Economics Faculty McAnulty College of Liberal Arts Duquesne University Pittsburgh, Pennsylvania. [51]Abuzeid, F. (2009). Foreign Aid and the” Big Push” Theory: Lessons from Sub-Saharan Africa. Stanford Journal of International Relations, 11(1), 16-23. [52]Kosack, Stephen and Tobin, Jennifer (2006: Funding self-sustaining development: the role of aid, FDI and government in economic success, in: International Organization, 60:205- 243. [53]Knack, S. (2000). Aid Dependence and the Quality of Governance, Policy Research Working Paper, Washington, D.C: World Bank. [54]Mosley P, Ellis W, Johnson T. (2000). Aid, Poverty Reduction and the ‘New Conditionality’. The Economic Journal 14(2) 114-123. [55]Gibson, C., Hoffman, B., & Jablonski, R., (2014). Did Aid Promote Democracy in Africa? The Role of Technical Assistance in Africa’s Transitions”, University of California, San Diego. http://ryanjablonski. files.wordpress.com/2014/05/did-aid-promote-democracy-in-africa.pdf (Accessed: 17/02/2019). [56]Nelson, J. M. (1990). Economic crises and policy choice: The politics of economic adjustment in the Third World. Princeton, NJ: Princeton University Press. [57]Ihonvbere, J. O. (1996). Where is the Third Wave? A critical evaluation of Africa’s non-transition to democracy, Africa Today, 43, 343-368. [58]Goldsmith, A. (2001). Foreign aid and statehood in Africa, International Organization, 55 (1): 123-148. http://dx.doi.org/10.1162/002081801551432. [59]Crawford, G. (2001). Foreign aid and political reform. London: Palgrave. [60]Dunning, T. (2004). Conditioning the effects of aid: Cold War politics, donor credibility, and democracy in Africa. International Organization, 58 (2), 409- 423. [61]Tarp, F. (ed.) (2000). Foreign aid and development. London: Routledge. [62] Findley, M. G., Powell, J., Strandow, D. and Tanner, T. (2011). The Localized Geography of Foreign Aid: A New Dataset and Application to Violent Armed Conflict. World Development 39(11), 1995-2009. [63] Resnick, D. and van de Walle, N. (Eds.) (2013). Democratic trajectories in Africa: Unravelling the Impact of Foreign Aid, Oxford: Oxford University Press. [64] Wright, J. and Winters, M. (2010). The Politics of Effective Foreign Aid, Annual Review of Political Science, 13:61-80, 10.1146/annurev.polisci.032708.143524. [65] Dietrich, Simone (2013). Bypass or Engage? Explaining donor delivery tactics in foreign aid allocation, International Studies Quarterly, 57(4): 698-712. [66] Kathavate, J., & Mallik, G. (2012). The impact of the Interaction between institutional quality and aid volatility on growth: theory and evidence, Economic Modelling, 29(3), 716-724. [67] World Bank, Europe & Central Asia Region (1998). Infrastructure Sector, Project appraisal document on a proposed credit in the amount of SDR 7.5 million equivalent to Albania for an urban land management project (No. 17694). World Bank. [68] Burnside, C., & Dollar, D. (2000). Aid, policies, and growth. American economic review, 90(4), 847-868. [69] Easterly, W, Levine, R. and Roodman, D. (2004). Aid, Policies, and Growth: Comment. American Economic Review, 94: 774-780. [70] Pack, H., & Pack, J. R. (1993). Foreign aid and the question of fungibility, The Review of Economics and Statistics, 258-265. [71] Khilji, N. M., & Zampelli, E. M. (1991). The fungibility of US assistance to developing countries and the impact on recipient expenditures: a case study of Pakistan. World Development, 19(8), 1095-1105. [72] Heller, P. S. (1975). A model of public fiscal behavior in developing countries: Aid, investment, and taxation, The American Economic Review, 65(3), 429- 445. [73] Quartey, P. (2005). Innovative ways of making aid effective in Ghana: tied aid versus direct budgetary support, Journal of International Development, 17(8), 1077-1092. [74] Bauer, P. W., & Hancock, D. (1993). Efficiency and technical progress in check processing. Economic Review, Federal Reserve Bank of Cleveland, 29, 24- 38. [75] Azam, J. P, & Laffont, J. J. (2003). Contracting for Aid, Journal of Development Economics 70(1), 25- 58. [76] Osabuohien, E. S., & Ike, D. N. (2011). Economic Transformation and Institutional Framework in Nigeria-Lessons from Botswana and South Korea, In 52nd Annual Conference of Nigerian Economic Society on Planning and the Transformation of the Nigerian Economy, Covenant University, Ota, Nigeria. [77] Moyo, D. (2009). Dead aid: Why aid is not working and how there is a better way for Africa. Macmillan. [78] Reuveny, R., & Li, Q. (2003). Economic openness, democracy, and income inequality: an empirical analysis. Comparative Political Studies, 36(5), 575-601. [79] Mosley, P., Hudson, J., & Verschoor, A. (2004). Aid, poverty reduction and the ‘new conditionality. The economic journal, 114(496), F217-F243. [80] McGillivray, M., Feeny, S., Hermes, N., & Lensink, R. (2006). Controversies over the impact of development aid: it works; it doesn’t; it can, but that depends…. Journal of International Development: The Journal of the Development Studies Association, 18(7), 1031-1050. [81] Islam, N. (2003). What have we learnt from the convergence debate? Journal of economic surveys, 17(3), 309-362. [82] Boone, P. (1996). Politics and the effectiveness of foreign aid. European economic review, 40(2), 289- 329. [83] Wright, J. (2009). How foreign aid can foster democratization in authoritarian regimes, American Journal of Political Science, 53 (3), 552-571. [84] Devarajan, S. and Swaroop, V. (1998) “The Implications of Foreign Aid Fungibility for Development Assistance”, Development Research Group, Washington, D.C: World Bank. [85] Remmer, K.L. (2004) “Does Foreign Aid Promote the Expansion of Government?”, American Journal of Political Science, vol.48, 1, pp.77-92. [86] Pedersen, K.R. (2001) “The Samaritan’s Dilemma and the Effectiveness of Development Aid, International Tax and Public Finance, 8, pp.693-703. [87] Kasper, W. (2006). Make poverty history: Tackle corruption, The Centre for Independent Studies, No.67. [88] Knack, S. (2000). Aid dependence and the quality of governance, Policy Research Working Paper, Washington, D.C: World Bank. [89] McGillivray, Mark (2003). Aid Effectiveness and Selectivity: Integrating Multiple Objectives into Aid Allocations, DAC Journal, 4 (3): 27-40. [90] Maizels, A. and Nissanke, Machiko (1984). Motivations for aid to developing countries, World Development, 12(9), pp. 879-900. [91] McGillivray, M. (1992). The Impact of Foreign Aid on the Fiscal Behaviour of Asian LDC Governments: A Comment on Khan and Hoshino, World Development, 22 (1994): 2015-17. [92] Pesaran, H. M; Shin, Y and Smith, R. J. (1996). Testing for the existence of long-run relationship, Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge. [93] Pesaran, M.H. and Shin, Y. (1999). An Autoregressive Distributed Lag Modeling Approach to Cointegration Analysis, In: Strom, S., Holly, A., Diamond, P. (Eds.), Centennial Volume of Rangar Frisch, Cambridge University Press, Cambridge. [94] Pesaran, M. H.; Smith, R. J. and Shin,Y. (2001). Bounds Testing Approaches to the Analysis of Level Relationships, Journal of Applied Econometrics, 16, 289-326. [95] Harris, Richard and Sollis, Robert (2003). Applied time series — modelling and forecasting, Southern Gate. Chichester: John Wiley & Sons Ltd, The Atrium.