Official Development Assistance and Poverty Alleviation in Nigeria: An Error Correction Model Approach

This study is examined the relationship between official development assistance and poverty alleviation in Nigeria which majority of studies in the past have failed to explore. Consequently, the study utilized an error correction model to address its objective. The major findings in this study are as follows. There is a significant negative relationship between official development assistance and household consumption per capita in Nigeria. This implies that official development assistance has no capacity to alleviate the current worrisome level of poverty in this country. However, FDI contributes to poverty alleviation in Nigeria though not significant. Furthermore, 11% of the error caused by shock was corrected annually in the model. The study therefore makes these recommendations for the policy makers; whenever alleviation of poverty is the target of the policy makers in the country, the Nigerian government should be committed to the provision of conducive investment environment that can facilitate further inflows of FDI from the developed countries, especially G 7 and G 13 countries. Also, the policy makers in Nigeria should not compromise in tailoring official development assistance towards projects and programs that have trickle down effects on the masses in Nigeria.

creditors. A cursory look at Official Development Assistance (ODA) data shows that wide fluctuations have remained a regular trend of ODA in Nigeria especially during the period 2010 -2017. However, one of the principal concerns in a bid to reinforce these core values of development namely: human sustenance; self-esteem and freedom is alleviation of poverty (Todaro and Smith, 2009: 20-22). This justified the paramount reason why the first goal of the United Nation's Millennium Development Goals is centered on eradication of extreme poverty and hunger in the third world economies, with the mandate to reduce the proportion of people with income of less than $1 per day and at same time the proportion of people suffering from hunger is reduced to half between 1990 and 2015, (Sachs, 2005:72). Yet, majority of developing countries are still lagging behind with high degree of poverty in which Nigeria is not insulated (United Nations, 2015). Unfortunately, in 1970s, Nigeria`s the GDP per capita was among the 50 richest countries in the globe, but today, is the 'headquarters of poverty' (WDI, 2018). Nigeria is the sixth largest exporter of oil in the world nevertheless, nevertheless; one of the critical socio economic problems facing the country, currently, is high levels of poverty. The report by World Poverty Clock compiled by the Brookings institute, USA, as at May 2018 found that about 86.9 million Nigerians are in extreme poverty -the highest in the world (Adebayo, 2018). It is worth of note that this extreme level of poverty in the country has manifested in the various forms such as the inability of over 70% of the citizens to have access to basic necessities of life, over 60% live below a dollar per day, over 80 million youths unemployed, mass migration of young people to Europe through Sub Saharan desert, compromise of moral values or abandon moral values of the people and increasing rate of crimes among the populace on daily basis in the country. However, ODA has been identified as a vital source of financing developmental project in developing economies. Also, aid has the capacity to propel development in a capital deficit country to its ultimate steady-state potential growth rate faster. And it can equally improve a country's steady state growth rate owing to its spillovers such as technical know-how and better governance that usually accompany the inflows of foreign capital. Consequently, it is important to stress that one of the most critical challenges confronting developing countries today is the quest to eradicate poverty. The need to achieve the sustainable development goals (SDGs) in developing countries by 2030 has sparked off advocacy in some quarters for the usage of a holistic approach to tackle poverty in which ODA is one of the variables that could fast -track the process. As a result of this there should be a paradigm shift in research focus from economic growth to poverty reduction in the recent time because economic growth is not necessarily a sufficient condition for poverty reduction in developing countries. In Nigeria, an attempt to empirically verify the nexus between official development assistance and poverty alleviation has generated d ebates on appropriate policies. See N"dri Kan (2017), JideIbietan, Felix and Ese (2014), Okon, (2012), Akpan and Udoma (2011). Given the mixed findings and controversies identified in the literature, there is a need to re-establish the nature of the relationship that exists between ODA and poverty alleviation in Nigeria. Also, this study is unique because it employs error correction model that addresses the objective of this study in which past studies had undermined. The reason for the choice of this methodology was largely due to the one cointegration equation among the non-stationarity condition of all the variables of interest in this study. In meeting the research objective, this study examined the relationship between ODA and poverty alleviation between 1981 and 2017. Therefore, the timeline of 37 years is assumed to be sufficient enough for the employment of error correctio n model technique in this study. The rest of this work is organized as follows; section two examines the review of relevant literature and section three presents methodology, discussion of results, conclusion and policy recommendation.

THEORETICAL FRAMEWORK:
It has been established in the literature by several aid experts and scholars that official development assistance was an offshoot of income transfer due to reparation payments after the Second World War II which led to the formation of the Marshall Plan (Ali and Zeb 2016;Kemp 1995). War brought the phenomenon of official development assistance into limelight with a view to ensuring fairness and betterment of people living in backward and underdeveloped countries (Ali and Zeb 2016). Official development assistance became popular as a result of the continuous debate among the scholars and policy makers since the formation of the Marshall Plan, during the period of the late 1940s to the 1960s. The division of the globe into the first world, second world and third world has been argued to be the aftermath effect of the plan (Wood 2015;Black 1968). Consequently, an attempt to advance various motives behind the inflows of the official development assistance in the world, Lloyd Black (1968) categorized the motives into four groups, namely defense, economic, political and humanitarian rationale. These periods were the early years in which Gross National Product (GNP) was the indicator of economic growth where the strategical indicators were the need for capital, investment and savings. Degnbol-Martinussen and Engberg-Pederse (2003) submitted that increasing GNP by aids recipient countries was synonymous to increasing the export of scarce resources needed by developed nations. Besides GNP, employment concept was also advocated to increase opportunities in recipient countries via the development of physical infrastructure. Meanwhile, Griffin (1991) concluded that the concept of diplomatic considerations as the major motivations behind the flow of official development a ssistance to former colonies by stressing the significance of support at the UN of donor countries maintaining their influence with these former colonies. Therefore, it is apparent that the needs of developing countries played a major role in the formatio n of official development assistance, but the strategic interests of wealthy nations shaped the rationale for its operation.

EMPIRICAL LITERATURE REVIEW:
This section presents past empirical studies regarding official development and poverty. However, JideIbietan, Felix and Ese (2014) submitted that despite the high flows of ODA in Nigeria on annual basis yet there is little or no impact on poverty alleviation in Nigeria. Askarov (2015) employed the technique of instrumental variables to establish that aid has a direct impact on economic growth in emerging economies. Similarly, N"dri Kan (2017) examined the nexus between official development assistance and poverty alleviation among ECOWAS countries with the application of panel data between1980 and 2014. The results from the study indicated that the ODA contributed to poverty alleviation in the region. But, its impact on economic growth was inimical. As a result of this, the author submitted that ODA is pro-poor due to which no growth enhancement occurs in the ECOWAS sub region. In another perspective, Ali, Nishat and Anwar (2010) utilized the LIML point estimates to submit that a sustained inflow of 25 USD aid per capita is supposed to improve growth rate by around 50 percentage point on average At the same time, it also alleviates poverty by around 6.5 percentage points, gear up investment by around 1.5 percentage points in GDP, increase a verage schooling by 0.4 years and increase life expectancy by 1.3 years and bring about reduction in infant mortality by 7 in every 1000 births Consequently, Eskander Alvi (2008) evaluated the relationship between aid and the importance of policy in generating economic growth with nonlinear relationship between the variables in developing countries. It was inferred from the study that policy constituted a pertinent factor that determines growth, and at the same time growth emanated from aid in a good policy environment, despite the fact there was an evidence to support diminishing returns to aid. While examining the effectiveness of aid on poverty reduction, Collier and Dollar (2002) used regression analysis to prove that the impact of aid on poverty is a function of its impact on per capita income growth. It was confirmed that the aid leads to economic growth, which eventually reduces poverty. In the same vein, Akpan and Udoma (2011) investigated the impact of ODA on the performance of economy in Nigeria between 1970 and 2010 with the aid of least squares (3SLS) estimation technique. The study submitted that ODA has an insignificant effect on the Nigerian economic deve lopment. But capital expenditure brought about a significant economic development in the country. Moreover, past studies on nexus between official development assistant and poverty alleviation in Nigeria are very scanty. This is also justifies the critical need to fill this gap in that regards.

METHODOLOGY:
This study utilized secondary data from 1981 to 2017. Data on official development assistance was extracted from World Development Indicator, meanwhile data on foreign direct investment were sourced from (UNCTAD, 2018) investment report and data on household consumption per capita (poverty level) were sourced from the Central Bank of Nigeria Statistical Bulletin. In order to estimate the long run relationship alongside with the short run relationship between the variables, the short run error correction model is specified explicitly as follows.
The ECM t−1 is the error correction term of the short run equation.

Measurement of Variables:
For the purpose of achieving the stated objectives in this study, the operational definitions of the variables employed can be captured as follows FDI: This measures the total foreign direct investment in all sectors of the Nigerian economy. Poverty Level: This is measured by household consumption per capita in Nigeria. ODA: Official development assistance is measured by foreign development aid in terms of disbursements of loans made on concessional terms (net of repayments of principal) and grants by official agencies to Nigeria.  Table 1 shows the descriptive statistics of the data employed for econometric analysis in this study. To ensure that the assumptions of normality and asymptotic properties of data series are satisfied, this paper has examined various descriptive statistics such as the mean, median, minimum and maximum values; and the distribution of the sample measured by the skewness, kurtosis and Jaque-Bera statistics. The values of the mean and the media of variables like ODA, exchange rate and FDI are not too wide from each other. However, the reverse is the case of the variable used to proxy poverty level. This implies that the distribution of the data series is a little bit symmetrical. This is also reflected in the value of Kurtosis which is not far from 3.    (1990) The results of the pre-estimation unit root tests established that the variables of interest in this study possess a unit root. The implication of this is that these variables might show deviation in the short run, yet there is high possibility they have a long run equilibrium relationship. In order to examine the existence or otherwise of the long run convergence of the variables, the study utilized cointegration test. Consequently, the results of this test indicate the existence of at most one cointegrating vectors in the systems from the eigenvalue and the maximal eigenvalue statistics. Hence, the variables of interest in this paper have a long run equilibrium relationship with one another, though they might likely show some adjustment to short run disequilibrium. Hence, the error correction model was estimated to capture the long run relationship alongside with the short run disequilibrium in the model. Model was subjected to the conventional diagnostic tests such as Final prediction error, Schwarz information criterion, Schwarz information criterion, the Akaike Information Criterion and Hannan-Quinn information criterion for the appropriate lag length selection was adopted in choosing the appropriate lag length. The results in the above table show that lag 3 is used in estimating relationship between the variables of interest within the ECM framework Source: Authors` Computation (2019) ***Significant at 10%, **Significant at 5%, *Significant at 1%, Table 5 shows the results of the estimated error correction model. The error correction term, ECM (-1) has an expected sign and significant at the same time. This shows that about 11% error orchestrated by external shock in the model is corrected annually. In other words, the model corrects its short run disequilibrium by about 11 percent speed of adjustment in order to return to the long run equilibrium. This implies that all the variables of interest in the model converged in the long run. In the same vein, the third differenced lagged value of the dependent variable-D(POVT(-3) is negative but insignificant in the long run. This implies that the poverty level in the previous year increases the level of poverty in the current year in the long run. However, the coefficient of official development assistance at lag 3 shows that this variable has a negative and significant relationship with household consumption per capita in Nigeria both in the short run and long run. A unit change in official development assistance reduces household consumption per capita by 6.2% and 4.5% in Nigeria in the short run and long run respectively. The implication of this finding is that official development assistance could not alleviate poverty in Nigeria. The reason for this negative result might be the high level of embezzlement of public funds by public office holders and investment in white elephant projects in the country. This finding is in line with the conclusion of JideIbietan, Felix and Ese (2014) who opined that despite the high flows of ODA in Nigeria, there is little or no impact on poverty alleviation in the country. But, it contradicts the submission of N"dri Kan (2017) in a related study in ECOWAS countries. Exchange rate and household consumption per capita have a significant relationship in the long run. However, the relationship between FDI and household consumption per capita is positive but insignificant at the all lags. As FDI inflows changes by a unit, the household per capita increases by 1.3% and 8.7% in the short run and long run simultaneously at lag 3. This implies that FDI inflows contributes to poverty alleviation though not significant in Nigeria. This submission is validated by the findings of Israel (2014). Further, it contradicts the submission of Ogunniyi and Igberi (2014), Akinmulegun (2012) and Ali, Nishat and Anwar (2010) in similar studies in Nigeria and Pakistan respectively.

CONCLUSION AND RECOMMENDATIONS:
An investigation about the relationship between official development assistance and poverty alleviation in Nigeria over the period of 1981 to 2017 has been carried out in this study. The test for cointegration proved that there is a long-run equilibrium relationship among official development assistance, FDI and poverty level in Nigeria, while the error correction term indicated that about 11% of the total disequilibrium corrected on the annual basis in the model. However, there is a significant inverse relationship found between official development assistance and household consumption per capita as a proxy for poverty level in Nigeria. This implies that official development assistance has no capacity to alleviate the current worrisome level of poverty in this country. Meanwhile, the contribution of FDI has led to poverty alleviation in Nigeria, but not significantly. The reason for this insignificant spillover might be connected to the larger percentage of FDI inflows which goes to oil and gas in Nigeria which may not translate to the welfare of the average Nigerian over the time. Furthermore, the paramount findings that emanated from this paper brought about the following recommendations for both policy makers and the general public that official development assistance is not capable of alleviating poverty in Nigeria. But FDI inflows have the potential to alleviate poverty levels in Nigeria if channeled towards projects that have trickled down effects on the masses. As such, policy makers in Nigeria should be more committed to provide a better investment climate so as to facilitate further inflows of FDI from developed countries. Also, policy makers should earmark official development assistance towards projects and programs that have trickle down effects on the masses in Nigeria.