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UGWU, EPHRIAM IKECHUKWU
PG/M.Sc/09/52232
ECONOMIC GROWTH AND POVERTY IN NIGERIA:IS GROWTH PROPOOR? EVIDENCE FROM EXISTING DATA SETS
DEPARTMENT OF ECONOMICS
FACULTY OF SOCIAL SCIENCES
Chukwuma Ugwuoke
Digitally Signed by: Content manager‘s Name
DN : CN = Webmaster‘s name
O= University of Nigeria, Nsukka
OU = Innovation Centre
2i
TITLE PAGE
ECONOMIC GROWTH AND POVERTY IN
NIGERIA: IS GROWTH PRO-POOR? EVIDENCE
FROM EXISTING DATA SETS
M.SC. THESIS
BY
UGWU, EPHRAIM IKECHUKWU
REG.NO. PG/M.SC./09/ 52232
DEPARTMENT OF ECONOMICS, UNIVERSITY OF
NIGERIA, NSUKKA
SUPERVISOR: REV. FR. DR. H.E. ICHOKU
NOVEMBER, 2012.
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CHAPTER ONE
INTRODUCTION
1.1 Background of the study
The recent years have witnessed an increasingly strong interest in the impact of economic
growth on poverty. An important reason for this has been the establishment of the so
called Millennium Development Goals, which have set poverty reduction as a
fundamental objective of development (Duclos and Verdier-Chouchane, 2010).
According to the authors, in the literature on the linkages between growth, poverty and
inequality, there is often a tension between macro and microanalysis. Shorrocks and van
der Hoeven( 2004) were of the view that although a search for general conclusions may
seem natural at a macro level, it is important that a careful micro work is needed to deal
adequately with poverty issues.
The World Bank and IMF have begun to stress that a central way of reducing poverty is
to boost GDP growth and in particular, they strive to achieve ―pro-poor‖ Gross Domestic
Product (GDP) growth. The Organization for Economic Co-operation and Development
(OECD) (2001) defined Pro-poor growth as growth that leads to significant reductions in
poverty. Whether GDP growth will automatically reduce poverty depends on its
relationship with inequality (Miles and Scott, 2005). The authors states that if the benefits
of GDP growth accrue only to the rich, then GDP growth will boost inequality but leave
poverty unaffected. It may even be possible that GDP growth in a modern sector of the
economy leads to declines in traditional sectors where the poor are mainly based. In this
case, GDP growth produces widening inequality and higher levels of poverty
immiserizing growth. Ijaiya, Ijaiya, Bello and Ajayi(2011) stated that growth in the
economy of any nation is a clear indication of an improvement in the socioeconomic
well-being of its people. The African Development Bank (AfDB) (2008) report indicated
that a deterioration in the growth rate as shown in most developing countries is thus a
manifestation of the fall in the standard of living of the people that cumulates into
poverty.
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According to Aho, Lariviére and Martin (1998) ―The concept of poverty has evolved in
the history of economic thoughts, witnessing different stages of transition since the 18th
century‖. The second transition in the evolution of the concept of poverty began at the
end of the colonial period with new awareness of the problem of poverty as it afflicts
developing countries. The post-colonial period has been characterized by a deliberate
transfer from the North to the South of the anti- poverty polices development in Europe
during the nineteenth and twentieth centuries. Poverty has been traditionally understood
to mean a lack of access to resources, productive assets and income resulting in a state of
material deprivation (Baulch, 1996).
Progress on poverty reduction has become a major measure of success of development
policy. In the 1970s and 1980s, the pre-occupation was with growth, the need to grow the
economies and incomes. Growth was seen as a prerequisite for improved welfare. Many
developing countries in the 1980s implemented Structural Adjustment Programmes
(SAP) aimed at enhancing growth. Following these programmes, many countries
recorded positive real growth rates. The development literature in the 1990s was
dominated by the view that growth is central to any strategy aimed at poverty reduction.
Countries that made noticeable progress on poverty reduction were those which recorded
fast and high growth rates (World Bank, 2000).
According to Miles and Scott (2005), ―The World Bank measures poverty as the number
of people living on less than $1 a day (using PPP exchange rates) and an alternative
measure of less than $2 a day‖. The authors were of the view that by any standards, these
are extremely low levels of income (not enough to provide clean water, sanitation, and
adequate food, let alone health and education). The World Bank (2003) report noted that
in 1998 more than 2.8 billion people were living on less than $2 a day and nearly 1.2
billion on less than $1 a day. Even worse, the number of people living in poverty has
increased over time. Reducing world poverty is a major policy aim, summarized in the
United Nation‘s Millenium Development Goals, which aim to reduce by half the
proportion of people living on less than $1 a day. This involves reducing poverty from
29% to 14.5% of world population and reducing the number of poor people from 1.2
billion to 890 million by 2015 (Miles and Scott, 2005).
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According to Page (2005) ―Africa is the only region of the developing world in which the
number of people living below the international poverty line of $1.00 per day has
increased in the last twenty-five years‖. The author noted that in response, beginning in
the early 1990s, changes in donor objectives and behavior placed the poor at the center of
development assistance policy in Africa. Civil society organizations and aid agencies as
diverse as Britain‘s DFID and the Vatican, advocated developing strategies for ―pro-poor
growth‖ in Africa.
In Nigeria during the last three decades, the country earned over US$300 billion from
crude oil alone. Today, this should have transformed into a huge socio-economic
development of the country. Instead, Nigeria‘s basic social indicators now place her as
one of the 25 poorest countries in the world (Akanbi and Du Toit, 2009). According to
the authors, Nigerian economy has recorded a rising growth in its GDP especially over
the last decades but this has not translated into accelerated employment and reduction in
poverty among its citizens. The country witnessed a fall in Gross Domestic Product
(GDP) from an annual average rate of 10.5 percent in 1985 to 3.2 percent in 2007 (Ijaiya
et al, 2011). The African Development Bank (AfDB) further study in 2010 noted that
Nigeria also witnessed a decline in its per capita income from US $1600 in 1980 to US
$1160 in 2008. Within some 18 years, Nigeria had declined from being a low middle
income country and amongst the fifty richest countries in the world to one of the 30
poorest (Blench, 2004).
The Nigerian Living Standard Survey (2004) report noted that poverty dropped from 65.6
percent in 1996 to 57.8percent in 2004 while non-poor increased from 34.4 percent in
1996 to 42.2 percent in 2004. When this relative poverty measure was further
disaggregated to two levels of poverty, about 20 percent were core poor, 38.1percent
moderately poor and 42.2percent were non-poor. These equally showed that 10 percent
had moved from Core Poor to Moderate Poor while there was no remarkable change in
the moderate poor, which was 36.3 percent in 1996 and 38.1 percent in 2004.
Interestingly the Non-Poor increased from 34.4percent in 1996 to 42.2 percent in
2004(NBS, 2005).
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The NLSS (2004) survey report noted that in 1996 urban non-poor was 41.8 percent as
against 64.7percent in 2004‖. This showed a remarkable improvement on the
consumption patterns of the urban dwellers. There was 3 percent positive change in the
moderate poor from 33.0 percent in 1996 to 29.8 percent in 2004. The growing urban
poverty noticed in 1996 has completely disappeared from 25.2percent in 1996 to 5.6
percent in 2004. Most importantly Rural Non-poor moved from 30.7percent in 1996 to
35.9 percent in 2004.
The moderately poor also changed negatively from 38.2percent to 40.5percent in 2004
while the core poor of 31.6 percent in 1996 dropped to 23.6 percent. This explains the
rise of moderately poor persons.
Economic reform in Nigeria was taken to a higher platform with the launching in mid –
2004 of National Economic Empowerment and Development Strategy (NEEDS). The
package recognizes the fact that for economic reform to be successful it must be anchored
on institutional reform, hence the latter forms a key component of NEEDS. This marks a
notable departure from earlier reform efforts. According to Federal Government of
Nigeria (FGN) report (2004) ―NEEDS has as its focus wealth creation, employment
generation, poverty reduction, corruption eradication and general value re-orientation‖.
Like earlier reform packages, the strategy considers economic growth as crucial to
poverty reduction. A real gross domestic product (GDP) growth rate of between 5 and 7
percent was the target for the period 2004 to 2007, with non-oil GDP expected to grow at
between 7.3 and 9.5 percent during the period.
1.2 Statement of the Problem
Many Economists would argue that igniting economic growth and sustaining it is the
surest and most sustainable way to fight poverty. Cross-country studies on economic
growth and poverty reduction indicate that a 1% increase in growth has been associated
on average with a 1.5% reduction in poverty (Hasan, Mitra and Ulubasoglu, 2007). The
Asian Development Bank (ADB) (2004) report stated that there is a great deal of
variation in how much economic growth has reduced poverty across countries and even
within countries over different periods of time. In statistical terms, the report noted that
variation in economic growth can explain only around 45% of the variation in poverty
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reduction. These two ―stylized facts‖ about growth and poverty linkages - that poverty
reduction is closely associated with economic growth but that this association is by no
means perfect suggests two challenges for policymaker (Hasan et. al., 2007). According
to author, first what are the policies that can ignite and thereafter sustain growth? Second,
how does one ensure that growth generates significant opportunities for the poor?
To date, poverty situation in Nigeria remains a paradox, at least from two perspectives.
Firstly, poverty in Nigeria is a paradox because the poverty level appears as a
contradiction considering the country‘s immense wealth. Secondly, poverty situation has
worsened despite the huge human and material resources that have been devoted to
poverty reduction by successive governments in Nigeria with no substantial success
achieved from such efforts (Oyeranti and Olayiwola, 2005). According to the authors,
since poverty remains a development issue, it has continued to capture the attention of
both national governments and international development agencies for several decades.
Since the mid 1980s, reducing poverty has become a major policy concern for
governments and donor agencies in all poverty stricken countries, Nigeria inclusive.
Thus, to attain the objective of reducing poverty in Nigeria, the preoccupation of the
government has been the growth of the economy as a pre-requisite for improved welfare.
To this effect the government therefore initiated several economic reform measures
which include Economic Stabilization measures of 1982, Economic Emergency Measures
in 1985 and Structural Adjustment Programme (SAP) in 1986. Components of SAP
include market- determined exchange and interest rates, liberalized financial sector, trade
liberalization, commercialization and privatization of a number of enterprises
(Aigbokhan, 2008).
Specialized agencies were also established to promote the objective of poverty reduction.
These include Agricultural Development Programmes, Nigeria Agricultural, Cooperative
and Rural Development Bank, National Agricultural Insurance Scheme, National
Directorate of Employment, National Primary Health Care Agency, Peoples Bank, Urban
Mass Transit, mass education through Universal Basic, Education (UBE), Rural
Electrification Schemes (RES) among others (Adigun, Awoyemi and Omonona, 2011).
The recent effort is based on the seven point agenda. Like earlier reform packages, the
strategy considers economic growth as crucial to poverty reduction. The major issues of
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the seven point agenda include: power and energy, food security, wealth creation and
transportation. Others are land reforms, security and mass education.
There may have been increased polarization in income distribution, resulting in a wider
gulf between the poor and the rich, manifested in a disappearing middle class in the
Nigerian economy. Despite policy interventions in the past to correct this abnormality,
income inequality has increased the dimension of poverty (Oyekale, 2007). Additionally,
attention to the importance of income distribution in poverty reduction seems to be
growing. Whether growth reduces poverty, and whether in particular, growth can be
deemed to be ―pro-poor‖, depends, however, on the impact of growth on inequality and
on how much this impact on inequality feeds into poverty (Araar and Duclos, 2007).
The rate of rising poverty in Nigeria has led to a number of empirical researches to
understand the link between economic growth and poverty reduction. These research
works (for example Adigun ,et al.2011, Akanbi and Du Toit, 2009; Orebiyi, 2008 and
Osunubi, 2006) however, are one sided in the sense that they particularly focused on how
various government policies affect poverty reduction and not if the growth performance
are pro-poor. The argument in the theoretical literature on whether a country should focus
on achieving growth and thereafter ensure that the pattern of its growth is pro-poor or
focus on reducing poverty by ensuring that this will lead to growth is still unclear and
therefore requires further empirical works especially for the case of Nigeria. This study is
therefore designed to fill these gaps by attempting to address the following research
questions: why has the rate of poverty been so high in Nigeria despite record increase in
economic growth? What is the nature of relationship between poverty and Economic
growth in Nigeria? If recorded economic growth cannot be translated into improved
living condition of the poor, what other measures of policy can be explored to reduce
poverty and how?
1.3 Objectives of the Study
The main objective of this study is to explore the linkages between economic growth and
poverty reduction in Nigeria. The specific objectives are:
i To ascertain if recorded economic growth in Nigeria translated into poverty reduction
ii To assess if growth is pro-poor in Nigeria.
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1.4 Research hypotheses
Based on the objectives outlined above, the following hypotheses therefore were
formulated for this study:
Ho1 Recorded economic growth does not translate into poverty reduction in Nigeria
Ho2 Growth in Nigeria is not pro-poor
1.5 Scope of the study
This study is limited to the Nigeria economy for the period 2004-2008, it uses Nigerian
households‘ survey for two periods 2003/2004 and 2008 to make an ex-post analysis of
changes in poverty.
1.6 Significance of the study
This research would contribute to the ongoing policy debate by identifying growth
patterns of the Nigerian economy and to what extent the poor benefit from economic
growth. In order to achieve this, it uses Nigerian households‘ survey for two periods
2003/2004 and 2008 to make an ex-post analysis of changes in poverty. It therefore
employs Kakwani, Khandker and Son (2004) framework called Poverty Equivalent
Growth Rate (PEGR) measure which utilizes unit record data available for two periods.
This measure of pro-poor growth according to the authors, captures a direct linkage (or
monotonic relation) with poverty reduction, indicating that poverty reduction takes into
accounts not only growth but also how benefits of growth are shared by individuals in
society. Therefore, a pro-poor growth measure that satisfies the monotonicity axiom
implies that the magnitude of poverty reduction should be a monotonically increasing
function of the pro-poor growth rate.
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1.7 Limitations of the Study
Although the research has reached its aim, there were some unavoidable limitations. First
because of time limit, this research was conducted using 1996-2004 Nigerian Living
Standard Household Survey (NLSS) data. The study should have included 2008 NLSS
but the data released then by the Federal Bureau of Statistics required some statistical
amendments to be used for empirical study. The use of Poverty Equivalent Growth Rate
(PEGR), instead of the usually Additively Decomposable Growth Rate measures resulted
in the delay of the project completion in order to get acquainted with the software
application.
1.8 Organizations of the Study
The paper is organized as follows: Following the introduction in chapter one is the
literature reviews in chapter two, which include theoretical and empirical literatures.
Chapter three is for methodology, the model of Pro-Poor growth, applying of additively
decomposable poverty measures and Poverty Equivalent Growth Rate (PEGR) measures,
calculating of PEGR and data sources, while chapter four consists of data analysis and
presentations of the results. Chapter five contains summary, conclusion and
recommendations.
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CHAPTER TWO
LITERATURE REVIEW
2.1 Theoretical literature
The OECD (2001) report noted that simple theory and empirical evidence indicate that
poverty reduction can be achieved by accelerating economic growth or by changing the
distribution of income in favor of the poor. The report further stated that sustained
economic growth reduces poverty. This is not to say, however, that average income
growth increases the incomes of the poor in every growth episode in every country. Propoor growth has been broadly defined by a number of international organizations as
growth that leads to significant reductions in poverty (OECD, 2001).
2.1.1 Linkage between Economic Growth, and Poverty Reduction
Page (2005) argued that an important strand of the literature on growth and poverty
reduction side steps the definitional debate. The author noted that it argues that because
on average, growth benefits the poor to the same extent it benefits the non-poor, the
distinction between growth and pro-poor growth as a public policy objective is not
practically relevant. Policies designed to maximize the rate of growth in low income
countries are likely also to be those that maximize the growth of income of the poor. Page
(2005) stated that it is difficult to argue that sustained poverty reduction can be achieved
alongside economic stagnation or decline, the debate over pro-growth versus pro-poor
strategies, hinges on the extent to which the average relationship between growth and
income distribution conceals important variations that may, ultimately be addressed by
public policy.
Islam (2004) stated that analysis of the relationship between economic growth and
poverty reduction has gone through various phases in the literature on development. For
example, an important premise of the very early theories of development was that the
benefits of economic growth would trickle down to the poor. Since then, questions have
been raised on the assumption of an automatic link between growth and poverty
reduction, and attempts have been made to understand the mechanisms through which the
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benefits of growth may get transmitted to the poor. Islam (2004) noted that following on
the Kuznets (1955) hypothesis of an inverted U shape of the relationship between
economic growth and income inequality, Adelman and Morris (1973) was one of the
earlier studies to question the automaticity of the relationship between economic growth
and benefits to the poor. And then the influential contribution by Chenery, Ahluwalia,
Bell, Dulloy and Jolly. (1974), focusing on the importance of redistribution alongside
economic growth.
Economic growth, however, came back to fashion once there were studies casting doubt
on the suggestion that higher growth could be associated with increased poverty, and reasserting that growth, almost always, reduced poverty (Fields, 1980).The decade of the
1980s witnessed renewed emphasis (especially on the part of the international
development partners) on economic growth; but studies on growth contributing to
poverty reduction again came in good numbers during recent years (Dollar and Kray,
2000). While growth continued to occupy the centre stage in development literature,
there have been studies, especially in recent years, arguing that although growth is
necessary for poverty reduction, it is not sufficient (Islam, 2004). The author explains that
some studies point out that the pattern of growth is important from the point of view of its
effectiveness in reducing poverty.
2.1.2Pro -poor growth theory
Akanbi and Du toit (2009) stated that the last few decades have experienced resurgence
in both the growth theory (development of the endogenous growth models) and the propoor growth models in the macroeconomic literature. According to Domar (1957) ―The
framework of neoclassical economics can be viewed as a summation of the various
contributions of authors to the model of long-run economic growth‖. The Author noted
that Solow (1956) made a huge contribution to the growth theory in which he has been
revered as the pioneer of neoclassical growth model. The implications of the neoclassical
growth model can be viewed on a short and long-run analysis. In the short-run, policy
measures like the tax cuts will affect the steady-state level of output but not the long-run
growth rate. Instead, growth will be affected as the economy converges to the new
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steady-state level of output which is determined mainly by the rate of capital
accumulation. This is in turn determined by the proportion of output that is not consumed
but is used to create more capital (Savings rate) and also the rate at which the level of
capital stock depreciate. This implies that the long-run growth rate will be exogenously
determined and the economy can be predicted to converge towards a steady-state growth
rate which depends on the rate of technological progress and labour force growth.
Therefore, a country will grow faster if it has a higher savings rate (Akanbi and Du toit,
2009).
The modification of the neoclassical growth model can be greatly attributed to the line of
thoughts of Ramsey (1928), Cass (1965), and Koopmans (1965) which are centred on
social planning problem (not market outcomes) that uses a dynamic optimisation analysis
of household‘s savings behaviour which is taken as constant fraction of income by Solow
(Akanbi and Du toit,2009). Their basic assumption is that agents in the community are
identical and they live forever. This means that they will maximise their utility over their
life time. King and Rebelo (1990) commented that the new growth theory which is also
known as the endogenous growth theory started gaining its feet firmly in the growth
literature in the early 1980s. This came about as a response to series of criticisms with the
assumptions made in the neoclassical theory. They tend to discard the assumption of
constant returns to scale by replacing it with an increasing returns to scale and try to see
growth as being generated by variables that are been determined within the model. So,
technology and human capital are seen to be endogenous unlike the neoclassical model
that assumed these to be exogenous.
However, their main emphasis about the long-term growth is that they do not depend on
exogenous factors and most importantly is that the model gives room for policies that
tend to affect savings and investment. Focus (2007) stated that the new growth theory has
gained tremendous popularity over the past few decades and their strength can be
attributed to their ability to solve most of the limitations of neoclassical growth models
and the inclusion of some socio-economic factors that will propel growth over the long
run. The author argued that in neoclassical and endogenous growth theories, an
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accelerated economic growth may not necessarily be sustainable and translate into an
accelerated economic development. Most developing economies are characterized by
structural supply (capacity) constraints impeding the effects of any policy interventions
targeted towards increasing growth.
According to World Bank report (2006) ―It is expected that as an economy grows, one
would see a sinking effect as an improvement in welfare of its citizenry. Meaning that,
the growth of a country should have a huge positive impact on its level of poverty‖. The
report noted that there has been a controversy on whether a country should focus on
achieving growth and thereafter ensure that the pattern of its growth is pro-poor or focus
on reducing poverty by ensuring that this will lead to growth. However, poverty can be
viewed as a barrier to growth in the sense that a country will not grow if they are poor.
This line of thought has opened the door to the existence of poverty trap where poverty
and growth interact in a vicious circle. Meaning that a high poverty level will lead to low
growth and low growth will also lead to high poverty level. Akanbi and Du toit (2009)
were of the view that it is imperative for any economy experiencing a poverty trap to
maintain a focus strategic macroeconomic policy that would rely either on pro-growth or
pro-poor since there is a bidirectional link between growth and poverty. In addition, it
will be difficult to experience growth if the conditions of the poor are not addressed and
also poverty will not decline if there is no growth. The World Bank report (2006) noted
that there has been a controversy on whether a country should focus on achieving growth
and thereafter ensure that the pattern of its growth is pro-poor or focus on reducing
poverty by ensuring that this will lead to growth.
2.2Measuring Pro-poor Growth
The way the impact of economic growth on poverty is measured often dictates the chosen
policy intervention. The measured degree of pro-poorness of growth depends to a large
extent on the underlying concept. While the World Bank defines growth as pro-poor
when the increase in gross domestic product reduces poverty (however small the
reduction) (Ravallion 2004), the United Nations Development Program (UNDP) only
regards growth as pro-poor if the poor benefit proportionally more than the non-poor
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(Pasha and Palanivel 2004). White and Anderson (2001) subsume the different meanings
of pro-poor growth by comparing the variance of the poor‘s share of income to
(i) Their previous share,
(ii) Their share in the population, or
(iii) Some international norm (for example, a pre-specified poverty threshold).
The first definition is equivalent to that of the World Bank and is usually considered the
absolute definition of pro-poor growth. In that sense, growth must only fractionally
reduce poverty to be called pro-poor even though the poor might benefit proportionally
less from growth than the non-poor. Policy intervention concentrates on the
macroeconomic level in order to directly influence gross domestic product (GDP). The
second meaning of pro-poor growth is used by UNDP and includes an equality approach.
It is usually considered the relative definition and aims to minimize the gap between the
mean incomes of the poor and mean overall income. Hence, growth is pro-poor,
relatively speaking, if it benefits the poor proportionately more than the non-poor
(Zepeda, 2004). This view generally favors microeconomic policies that reduce
inequality rather than a concentration on overall economic growth. Consequently, the
measured effects of policy interventions vary with the definition of pro-poor growth.
Recent empirical studies show how a decrease in relative inequality is regularly
accompanied by an increase in absolute inequality.
In order to emphasize the dependence of outcomes on the definition of pro-poor growth,
McKay (2007) draws on the case of Vietnam. During the period from 1992 to 2003, the
drop in overall poverty is considered to be pro-poor according to the absolute definition.
Using the relative definition, the same growth process cannot be deemed pro-poor, since
high income groups benefited relatively more than low income groups. The reverse is
true for the case of Indonesia during the period after the financial crisis (1996-2002).
There, albeit negative, growth was pro-poor in a relative sense as inequality fell and,
hence, the poor suffered relatively less than the non-poor. However, it was not pro-poor
with regard to the absolute definition, since growth was negative and poverty incepts and
thus define varying tools to quantify the impact of growth on poverty. Among the
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concepts, the measurement tools of UNDP and the World Bank are considered the most
advanced. They have also been the most influential for recent empirical research.
While the growth elasticity of poverty (GEP) only relates changes in poverty with
changes in per capita income, the poverty equivalent growth rate (PEGR) and the rate of
pro-poor growth (RPPG) include the dimension of the equality of growth. PEGR captures
the change in poverty when inequality changes without affecting the real mean income.
Thus, the estimated growth rate gives more weight to the incomes of the poor (the weight
depending on the specified threshold). The RPPG is based on the concept of a ―growth
incidence curve‖ (GIC) and marks the area under the GIC up to the headcount ratio.4 If
the RPPG exceeds the mean growth rate, growth is judged to be pro-poor in its relative
meaning. Hence, the measured effects of a policy intervention not only vary with the
definition of pro-poor growth but even more with the applied measurement tool:
While the RPPG judges Thailand‘s growth experience pro-poor for the period from 1990
to 1996, the PEGR only does so for the last four years. Hence, according to Zepeda
(2004), RPPG overestimates Thai pro-poorness and therefore tends to falsely judge
poverty reduction strategies successful. In contrast, Ravallion (2004a) highlights the case
of Chinese growth that reduced absolute poverty notably in the period from 1980 to 2001.
According to the PEGR, the Chinese experience is judged more anti-poor than pro-poor.
Hence, PEGR tends to underestimate the Chinese pro-poorness and therefore tends to
falsely spurn successful policy strategies. While development practitioners and
researchers suggest multidimensional policy strategies to achieve pro-poor growth, only
few academic attempts have been made to integrate the multidimensionality of poverty in
its measurement. Grosse et. al. (2005) recently identified the exclusiveness of income as
an indicator for poverty as the crucial shortcoming of current pro-poor growth concepts.
They define poverty as a multidimensional phenomenon including social indicators and
then suggest, following Ravallion and Chen (2003), a non-income growth incidence
curve (NIGIC) that indicates the improvement of non-income indicators (health,
education, nutrition, and mortality) between two periods for each percentile.
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2.3 Poverty Reduction Strategies in Nigeria
To reduce poverty various schools of thought advocates a number of measures. For
instance, the Mercantilists laid emphasis on foreign trade which according to them is an
important vehicle for the promotion of economic growth and poverty reduction. Ijaiya,
Ijaiya, Bello and Ajayi (2011) explain that the Classical economists‘ (Adam Smith,
David Ricardo, Thomas Malthus, Karl Marx, etc.) views on poverty reduction brought to
fore the social changes brought about by technological changes resulting from the
industrial revolution that took place between 1750-1850 . The early development
economists of the 1940s and the 1950s advocate the theory of forced-drift
industrialization via Big push, Balanced growth and Labour transfer (Ijaiya 2002).
According to Ijaiya et. al.(2011) ―In the 1970s Chenery,et. al. (1974) advocates
redistribution of income‖. To them, poverty can better be reduced if radical redistribution
of income or land is allowed to take place in view of the interlocking power and selfinterest of the rich and the bureaucracy in the handling of the nations‘ resources (Ijaiya et.
al., 2011). The World Bank (1991) emphasizes on the need for stable macroeconomic
policies and economic growth. To the World Bank, sound fiscal and monetary policies
will create a hospitable climate for private investment and thus promote productivity
which in the long-run would lead to poverty reduction. This approach is what is referred
to as pro-poor growth approach to poverty reduction (Dollar and Kraay 2000).The 1980s
to the 2000s had witness the introduction of new strategies/approaches to poverty
reduction. Key among them are the basic needs and capabilities/entitlements approaches,
participatory development, social capital, community self help, good governance and
human right approaches to poverty reduction (United Nations report, 2004).
In Nigeria, various efforts were made by the government, non-governmental
organizations and individuals to reduce poverty in the country. According to Ogwumike
(2001) poverty reduction measures implemented so far in Nigeria focuses more attention
on economic growth, basic needs and rural development strategies. The economic growth
approach focuses attention on rapid economic growth as measured by the rate of growth
in real per capita GDP or per capita national income, price stability and declining
18
unemployment among others, which are attained through proper harmonization of
monetary and fiscal policies. The basic need approach focuses attention on the basic
necessities of life such as food, health care, education, shelter, clothing, transport, water
and sanitation, which could enable the poor live a decent life. The rural development
approach focuses attention on the total emancipation and empowerment of the rural
sector.
Furthermore, Ogwumike (2001) grouped the strategies for poverty reduction in Nigeria
into three eras – the pre–SAP era, the SAP era and the democratic era. In the pre-SAP
era, the measures that were predominant were the Operation Feed the Nation, the River
Basin Development Authorities, the Agricultural Development Programmes, the
Agricultural Credit Guarantee Scheme, the Rural Electrification Scheme and the Green
Revolution. In the SAP era the following poverty reduction measures were introduced;
the Directorate for Food, Roads and Rural Infrastructures, the National Directorate of
Employment, the Better Life Programme, the Peoples‘ Bank, the Community Banks, the
Family Support Programme and the Family Economic Advancement Programme. The
democratic era witnessed the introduction of the Poverty Alleviation Programme (PAP)
designed to provide employment to 200,000 people all over the country. It was also
aimed at inculcating and improving better attitudes towards a maintenance culture in
highways, urban and rural roads and public buildings. By 2001 PAP was phased out and
fused into the newly created National Poverty Eradication Programme (NAPEP) which
was an integral part of the National Economic Empowerment and Development Strategy
(NEEDS).
2.4 Empirical literature
Adigun et. al. (2011) analyze income growth and inequality elasticities of poverty in
Nigeria over a period of time. Using the secondary data obtained from National
Consumer Survey of 1996 and 2003/2004 Nigeria Living Standard Survey. The study
uses changes in mean per capita expenditure as a yardstick of economic growth and
adopts simple but powerful ratio estimates of Economic Growth and Inequality
elasticities of poverty. The result indicates that 1 percent increase in income growth will
19
lead to 0.624 percent reduction in poverty. The inequality elasticity of poverty shows that
a decrease of inequality by 1 percent would have decreased poverty by just 0.34 percent.
The result implies that what matters for poverty reduction is mainly accelerated economic
growth, redistribution and reductions in inequality
Ijaiya et. al. (2011) examine the impact of economic growth on poverty reduction in
Nigeria by taking into consideration a time subscript and a difference-in-difference
estimator that describes poverty reduction as a function of changes in economic growth.
Using a multiple regression analysis, the result obtained indicates that the initial level of
economic growth is not prone to poverty reduction, while a positive change in economic
growth is prone to poverty reduction. The study suggest that to improve and sustain the
rate of economic growth in Nigeria from which poverty could be reduced measures, such
as, stable macroeconomic policies, huge investment in agriculture, infrastructural
development and good governance are to implemented
Ayala and Jurado (2010) discuss whether substantive differences exist in terms of the
distribution of economic growth by income groups in Spanish regions. They use data
from the Spanish Family Budget Surveys for various years to estimate growth incidence
curves, decomposition models of poverty changes, and isopoverty curves. Their result
show that while economic growth in the long-term has meant an improvement of the
lower income percentiles in Spain, this improvement is not uniform in the different
regions
Akanbi and Du Toit (2009) develop comprehensive full-sector macro-econometric
models for the Nigerian economy with the aim of explaining and providing a long-term
solution for the persistent growth-poverty divergence experienced by the country. A
review of the historical performances of the Nigerian economy reveals significant socioeconomic constraints as the predominant impediments to high and sticky levels of
poverty in the economy. As such, a model of the Nigerian economy suitable for policy
analysis needs to capture the long-run supply-side characteristics of the economy. They
incorporate price block to specify the price adjustment between the production or supply-
20
side sector and real aggregate demand sector. The institutional characteristics with
associated policy behavior are incorporated through a public and monetary sector,
whereas the interaction with the rest of the world is presented by a foreign sector, with
specific attention given to the oil sector. They estimate the models using time-series data
from 1970 to 2006 using the Engle-Granger two-step cointegration technique, capturing
both the long-run and short-run dynamic properties of the economy. They subject the
full-sector models to a series of policy scenarios to evaluate the various options for
government to improve the productive capacity of the economy, in order to achieve
sustained accelerated growth and a reduction in poverty in the Nigerian economy.
Agrawal (2008) examines the relation between economic growth and poverty alleviation
in the case of Kazakhstan using province-level data. Using Additively Decomposable
Poverty Measures, the study shows that provinces with higher growth rates achieved
faster decline in poverty. This happened largely through growth, which led to increased
employment and higher real wages and contributed significantly to poverty reduction.
Rapidly increasing oil revenues since 1998 have helped significantly raise both gross
domestic product growth and government revenue in Kazakhstan. Part of the oil fund was
used to fund a pension and social protection program that has helped reduce poverty.
However, expenditure on other social sectors like education and health has not increased
much and needs more support. His empirical result shows that increased government
expenditure on social sectors did contribute significantly to poverty alleviation. The
author suggests that both rapid economic growth and enhanced government support for
the social sectors are helpful in reducing poverty.
Orebiyi (2008) assess how oil production in the Niger Delta has impoverish the people
given the fact that the existing property right regime concedes the ownership of all land
and land resources to the federal government, to whom the
oil companies are
responsible. Using Primary survey data, the Descriptive Statistics shows that poverty
could be linked to the prevalent property right regime within a system. But there is no
consensus regarding the most acceptable regime, which could bring about an acceptable
reduction in poverty.
21
Omer and Jafri (2008) assess the impact of economic growth on absolute poverty in
Pakistan over the last four decades. Their study attempts to answer the relatively ignored
basic question: is economic growth in Pakistan pro-poor? In addition, an attempt has been
made to evaluate the distribution of income within poor, a step necessary to determine the
sensitivity of different income groups, below poverty line, to the economic growth. They
use Growth Incidence Curves—a superior poverty measure—and calculation of the Rate
of Pro-Poor Growth (RPPG) and the Ordinary Rate of Growth (ORG). They find that
economic growth in Pakistan is not intrinsically pro-poor. Although it was pro-poor in the
seventies and is also the same in the current decade and strongly pro-poor in the eighties,
a positive growth in the nineties was, however, anti-poor. Their results show that the first
decile is most sensitive to economic growth and most vulnerable to economic shocks.
Osunubi (2006) notes that Nigeria is a nation that is endowed with multifarious and
multitudinous
resources-both
human
and
material.
However,
due
to
gross
mismanagement, profligate spending, kleptomania and adverse policies of various
governments of Nigeria, these resources have not been optimally utilized; these resources
have not been adequately channeled to profitable investments to bring about maximum
economic benefits. As a result of the foregoing, Nigeria has been bedeviled with
unemployment and poverty. She notes that economic growth, which is supposed to be a
solution to the problems of unemployment and poverty, appears not to be so in Nigeria.
Nigeria‘s official statistics show that economic growth has not always been accompanied
by decline in unemployment and poverty.
Oyeranti and Olayiwola (2005) evaluate policies and programmes for poverty reduction
in rural Nigeria. An examination of certain indicators of performance indicate that the
domestic and international poverty reduction measures have had minimal impact in
addressing the problems of poverty and also had insignificant impact on the living
conditions of the poor. Their measure indicates that the strategies were badly
implemented and even had no particular focus on the poor in terms of design and
implementation. The strategies try as much as possible to create the opportunity and
22
empower the poor, but they are found wanting in the areas of pro-poor growth and
resource redistribution. They note that the effort of international agencies cannot be
sustained due to lack of domestic supportive measures to guarantee its sustainability. This
is understandable from the fact that states and local governments which have
responsibilities for health care and education at the grassroots level and programmes
which affect poverty alleviation, have much less share in the Federation Account. They
stress that efficient design of poverty reduction programmes in Nigeria requires that the
poor must be identified and targeted and policies adopted should be consistent and
sustainable.
Timmer (2003) notes that no country has solved its problem of poverty through
agricultural development alone (much less through higher productivity for a single
commodity such as rice).At the same time, no country (except Singapore and Hong
Kong) has solved its problem of poverty without creating a dynamic agricultural sector.
He states that the secret is a successful structural transformation where agriculture,
through higher productivity, provides food, labor, and even savings to the process of
urbanization and industrialization. This process raises labor productivity, causes wages
to rise, and gradually eliminates the worst dimensions of absolute poverty. The process
also leads to a decline in the relative importance of agriculture to the overall economy.
And no country has undergone a successful, i.e. sustainable, structural transformation
without substantial openness to the world economy. Economists continue to debate the
optimal sequencing and degree of openness, but all agree that joining the global economy
has the potential to improve the efficiency of resource allocation and speed technological
change, which are the short-run and long-run sources of economic growth. He therefore
asserts that pro-poor economic growth is the basic vehicle for reducing poverty.
23
2.1 Summary of Empirical findings
AUTHOR/YEAR
Adigun et. al.
(2011)
Ijaiya et. al. (2011)
LOCATIO
N
Nigeria
NATURE OF
STUDY
Analyze
income growth
and inequality
elasticities of
poverty
NATURE
OF DATA
Using the
secondary
data
obtained
from
National
Consumer
Survey of
1996 and
2003/2004
Nigeria
Living
Standard
Survey
METHODOLOG
Y
Adopts simple
but powerful
ratio estimates of
Economic
Growth and
Inequality
elasticities of
poverty
FINDINGS
Nigeria
The impact of
economic
growth on
poverty
reduction
Time series
data
Using a multiple
regression
analysis
Develop
comprehensive
full-sector
macroeconometric
models
Using timeseries data
from 1970
to 2006
The EngleGranger two-step
cointegration
technique
The result
obtained
indicates that
the initial level
of economic
growth is not
prone to
poverty
reduction,
while a
positive
change in
economic
growth is
prone to
poverty
reduction
They subject
the full-sector
models to a
series of
policy
scenarios to
evaluate the
various
options for
government to
improve the
Akanbi and Du Toit Nigeria
(2009)
The
inequality
elasticity of
poverty shows
that a decrease
of inequality
by 1 percent
would have
decreased
poverty by just
0.34 percent
24
Agrawal (2008)
Orebiyi(2008)
Omer and Jafri
(2008)
Osunubi (2006)
Oyeranti and
Olayiwola (2005)
productive
capacity of the
economy
He shows that
provinces with
higher growth
rates achieved
faster decline
in poverty
that reviewed
works actually
shows that
poverty could
be linked to
the prevalent
property right
regime within
a system
Kazakhstan The relation
between
economic
growth and
poverty
alleviation
Niger Delta How oil
production has
impoverish the
people given
the fact that the
existing
property right
regime
concedes the
ownership of
all land and
land resources
to the federal
government
Pakistan
The impact of
economic
growth on
absolute
poverty over
the last four
decades
Nigeria
Economic
growth,
unemployment
and poverty
Using
provincelevel data
Additively
Decomposable
Poverty
Measures
Primary
survey data
Descriptive
Statistics
Pakistan
Living
Standard
Survey data
Growth
Incidence Curves
that economic
growth in
Pakistan is not
intrinsically
pro-poor
Secondary
data from
Central
bank of
Nigeria
Descriptive
Statistics
approach
Show that
economic
growth has not
always been
accompanied
by decline in
unemployment
and poverty.
Nigeria
Comparativ
e studies
Performance
indicators
method
Note
that
efficient
design
of
poverty
reduction
programmes
in
Nigeria
Policies and
Programmes
for poverty
reduction
25
requires that
the poor must
be identified
and targeted
and policies
adopted
should
be
consistent and
sustainable.
Limitations of the previous study
A number of empirical researches to understand the link between economic growth and
poverty reduction have been conducted. These research works (for example Adigun ,et
al.2011, Akanbi and Du Toit, 2009; Orebiyi, 2008 and Osunubi, 2006) however, are one
sided in the sense that they particularly focused on how various government policies
affect poverty reduction and not if the growth performance are pro-poor. The argument in
the theoretical literature on whether a country should focus on achieving growth and
thereafter ensure that the pattern of its growth is pro-poor or focus on reducing poverty
by ensuring that this will lead to growth is still unclear and therefore requires further
empirical works especially for the case of Nigeria. This study is therefore designed to fill
these gaps by attempting to address the following research questions: why has the rate of
poverty been so high in Nigeria despite record increase in economic growth? What is the
nature of relationship between poverty, unemployment and growth in Nigeria? If growth
recorded economic growth cannot be translated into improved living condition of the
poor what other measures of policy can be explored to reduce poverty and how?
26
CHAPTER THREE
METHODOLOGY
3.1 The model of pro-poor growth
The model to be adopted for this research is the Poverty Equivalent Growth Rate (PEGR)
measures developed by Kakwani et.al. (2004). It takes into account not only growth but
also how benefits of growth are shared by individuals in society. As poverty reduction
depends on both growth and the distribution of its benefits among the poor and the nonpoor, growth alone is a necessary but not sufficient condition for poverty reduction
3.2 Applying additively decomposable poverty measures
Suppose income X of an individual is a random variable with distribution function
given by F(x). Let Z denote the poverty line, which measures the society‘s minimum
standard of livings. A person suffers absolute deprivation if his or her income is less
than Z . If his or her income is greater than or equal to  , we say he does not suffer any
deprivation. H = F(x) is the proportion of individuals who suffer absolute deprivation
because their income is below the society‘s minimum standard of living. H , thus
measures the incidence of poverty in the society and is called the headcount ratio
(Kakwani et. al.2004).
The Headcount ratio assumes that everyone whose income is below the poverty line
suffers the same degree of deprivation. It does not take into account there intensity of
deprivation that is suffered by the poor. Taking into account of the degree of intensity we
define the degree of absolute deprivation suffered by an individual with income X
as: Dep(x) = P (z,x) …………… (1)
If x < z
= 0 if x ≥ z
where : P(z,x) is a homogenous function of degree zero in z and x.
p( z, x)
<0
x
27
 2 p ( z , x)
>0
x 2
,
which means that the deprivation decreases strictly monotonically with income increasing
rate. Kakwani et. al. (2004) stated that the degree of poverty in the society may be
measured by the average deprivation that is suffered by the society, which is given by:
z
q =  p(z,x)f(x)dx
0
……………………………………...(2)
where: f(x) the probability density is function of x and is the general class of additive
poverty measurers. Foster et al (1984) proposed a class of poverty measures that is
 z x


obtained by substituting P (z, x) =  z  ………… (3),
a
in equation (2) where a is the parameter of inequality aversion. Other additive poverty
measures include watts (1968) and Thail‘s (1967) inequality measures are all in the
general
class
of
additive
poverty
measures.
This
measure
is
given
by
z
w=
  ln( z)  ln( x)  f ( x)dx
0
…………………………..… (4),
which takes into account the severity of deprivation suffered by the poor.
3.3 POVERTY EQUIVALENT GROWTH RATE (PEGR)
How does economic growth affect poverty reduction? To answer this, we need to
measure the factors that contribute in poverty reduction. According Kakwani et. al.
(2004), ―Poverty reduction depends on two factors‖ The first factor is the magnitude of
the economic growth rate: the larger the growth rate, the greater the reduction of poverty.
Growth is generally accompanied by changes in inequality; an increase in inequality
reduces the impact of growth on poverty reduction. To measure these two impacts, we
differentiate equation (2) to obtain
dq 1 p

d ( x) f ( x)d ( x)
q q 0 x
z
………………..…..……(5),
28
which follows from the assumption that p(z,z) = 0 : If an individual‘s income is equal
to the poverty line, then he or she does not suffer any deprivation. Suppose x(p) is
the income level of population at the pth percentile, equation (5) can be written
1 p
d ln(q)   x( p) g ( p)dp
q 0 x
H
as
……………………..… (6),
where: g(p)=dln(x(p)) is the growth rate of income of people on the pth percentile.
Suppose L( p) is the Lorenz curve z function which is the share of total income enjoyed
by the bottom p proportion when the individual in the population are arranged in
ascending order of their income, according to Kakwani (1980), the equation is therefore
stated as follows: x( p)  m( L '( p) ………………….……(7)
where: m is the mean income of society and L‘(p) is the first derivative of the Lorenz
function. Taking the Logarithm of (7) and differentiating it, we obtain the following
d ln( x( p))  d ln(m)  d ln( L '( p) which
equation:
translates
into g ( p)  g  d ln( L '( p)) ……………………………….(8)
where: g  d ln(m) is the growth rate of the mean income.
When we substitute equation (8) in (6) it gives the following equation:
1 p
x( p )d ( p )
q 0 x
H
d ln(q)  gh 
…………………….….… (9)
where-
1 p
x( p)dp
q 0 x
H
h
This is
…………………………….. ..… (10).
the growth elasticity of poverty derived by Kakwani (1993) which is the
percentage change in poverty when there is a 1 percent growth in the mean income of the
society, provided the growth process does not change inequality (when everyone on the
society received the same proportional benefit of growth). According to the author, the
elasticity is always negative.
29
Dividing equation (9) by g, we obtain d  h  z ……. (11)
d  d ln(q) / g
where:
1 p
x( p)d ln( L '( p))dp
qg 0 x
is
the
total
poverty
elasticity
and
H
z
…………………….… (12),
measures the inequality effect of poverty reduction. The equation tells us how poverty
changes due to change in inequality that is accompanied during the growth process. The
growth is pro-poor (anti- poor) if the change in inequality that accompanies growth
reduces (increases) the total poverty, Thus growth is pro-poor (ant-poor) if the total
elasticity of poverty is greater (less) than the growth elasticity of poverty
(Kakwani,2004).
The idea of poverty equivalent growth rate according to Kakwani et.al. (2004) is the

growth g that will result in the same level of poverty reductions as the present growth
rate g if the growth process had not been accompanied by any change in inequality (when
everyone in the society had received the same proportion benefit of growth). The actual
preoperational rate of poverty reduction is given by dg where d is the total poverty
elasticity. If the growth were distribution neutral, (when inequality had not changed),


then the growth rate g would achieve a proportional reduction in poverty equal to dh
which should be equal to dg .


This implies that PEGR denoted by g will be given by g  (d / h) g  f ( g ) …. (13)
Where f  d / h is the pro-poor index developed by Kakwani and Pernia (2000).


It implies that growth is pro-poor (anti poor) if g is greater (less) than g. If g lies
between 0 and g, the growth is accompanied by an increasing inequality but poverty still
reduces. The situation may be characterized as a trickle down process when the poor
receive proportionally less benefit from growth than the non-poor.



Growth is super pro-poor if g  g (h / h) , where h is the elasticity of poverty with
respect to growth is when the benefit of growth are equally shared by every individual in
30
m P
h   dP
q 0 x

the society,
H
In this case, pro-poor growth is defined as absolute, which
would occur when the poor receive the absolute benefits of growth equal to or more than
the absolute benefits received by the non-poor. Under this approach, absolute inequality
would fall during the course of growth. Thus, this absolute approach sets out the strongest
requirement for achieving pro-poor growth (Kakwani et. al., 2004).
3.4 Calculating PEGR
The general class of poverty measure g given in equation (2) is fully characterized by the
poverty line z , the mean income m and Lorenz curve L( p) . That is: q  q( z, m( L( p))
Suppose the income distributions in the initial and terminal years have mean incomes
m1
and m2 with the Lorenz curves L1 ( p) and L2 ( p) respectively, an estimate of total

poverty elasticity can be estimated by d



 Ln  q( z, m2, L2 ( p)   Ln q( z, m1, L1 ( p)  / g


where g is given by g  Ln(m2 )  Ln(m1 ) ,which is an estimate of growth rate of mean




income. An estimate of PEGR is given by g   (d / h) g …………… (17),

where: h is an estimate of the growth elasticity of poverty, which should satisfy equation



(11): d  h z ……………………………………………………… (18),

where: z is an estimate of the inequality effect of poverty reduction.


Using Kakwani (2000) poverty decomposition methodology, we calculate h and z by
the following
formular
 1

h  ln(q( z, m2, L1 ( p))  ln(q( z, m1L1 ( p))  ln(q( z, m2, L2 ( p))  ln(q( z, m1, L2 ( p))  / g
2
31
and

z

1
ln(q( z, m1, L2 ( p))  ln(q( z, m1, L1 ( p))  ln(q( z, m2, L2 ( p))  ln(q( z, m2, L1 ( p))  / g
2
,
…………………………………………………………………(19) ,
which satisfy equation (18).
According to Kakwani et. el. (2004), ―This methodology can be used to estimate the
PEGR for entire class of poverty measure given in equation (2)‖. The proportional

reduction in poverty is equal to
d̂ , ĝ which is equal to ĥ , ĝ from (19). Since ĥ is
always negative (unless m1  m2 ), the magnitude of poverty reduction will be a


monotonically increasing function of ĝ ; the larger the ĝ , the greater the percentage

reduction in poverty between the two periods. Thus, maximizing ĝ
will be equivalent
to maximizing the percentage reduction in poverty (Kakwani et. al., 2004).
3.5 Data Sources
Data for this study was from the databank of the National Bureau of Statistics (NBS) and
the Central Bank of Nigeria (CBN). The datasets used include those with information on
living conditions as well as standard of living to enable the quantification of poverty and
consequently, pro-poorness of growth. The study used the Nigeria Living Standards
Survey (NLSS) survey that was carried out for twelve months from September 2003
through to August 2004, households being interviewed over seven visits. The total
sample was 19,144 households. The average household size in Nigeria is 4.79 persons,
money amounts are in Nigerian Naira. There are 14,512 rural household and 4,646 urban
households in the dataset. Also, the current survey conducted in 2008 was also used. The
Variables of interest and consideration include household socio-economic characteristics,
employment statistics, geographic locations and regions, percentage of people in different
income levels, percentage of people in different age ranges, health status, consumption
and expenditures of individual households. These datasets was disaggregated according
to rural-urban division, the six geo-political divisions in Nigeria and according to gender
to fully understand the economic behaviour of these constituent groups.
32
CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION OF THE RESULT
4.1 Dimension of Poverty in Nigeria
Nigeria‘s national poverty profile (as well as those of the urban and rural areas) is
illustrated in Figure 4.1 for 1980-2004 (based on available data). The incidence of
poverty has generally been on the rise since 1980, with two significant differences during
1985-1992 and 1996-2004. Focusing on the most recent surveys (1996 and 2004), the
national poverty incidence was 65.6 percent in 1996 and declined to 54.4 percent in 2004.
Similarly, in 1996, the poverty depth (P1) and poverty severity (P2) were 0.358 and
0.207, but these decreased respectively to 0.225 and 0.122 in 2004.
Estimates of inequality also indicate that Nigeria has more unequal distribution of income
than Ethiopia, Madagascar, India, and Niger. Further analysis also suggests that poverty
in Nigeria is predominantly a rural phenomenon, with rural poverty increasing from 28.3
percent in 1980 to 63.8 percent in 2004. However, the proportion of the urban poor also
rose from 17.2 percent in 1980 to 43.1 percent in 2004. Thus, within rural areas
approximately 44.4 percent of households in 2004 could not meet their food expenditure
requirements. Another 19.4 percent could meet their food expenditure requirements, but
not the minimum expenditure to cover other basic needs. In the case of urban households,
26.7 percent were not able to meet their required food expenditure requirements while
16.4 percent could meet their food expenditure but not other non-food basic expenditure
needs.
Table 4.1: Percentage Distribution of the Population in Poverty
Years
Non-Poor
Moderately Poor
1980
72.8
21.0
6.2
1985
53.7
34.2
12.1
1992
57.3
28.9
13.9
1996
34.4
36.3
29.3
2004
42.2
38.1
19.7
Source: NBS (2005)
Core Poor
33
4.2 Poverty condition in Nigeria
The poverty condition in Nigeria dropped from 65.6 percent in 1996 to 57.8percent in
2004 while non-poor increased from 34.4 percent in 1996 to 42.2 percent in 2004. When
this relative poverty measure was further disaggregated to two levels of poverty, about
20percent were core poor, 38.1percent moderately poor and 42.2percent were non-poor.
These equally showed that 10 percent had moved from Core Poor to Moderate Poor while
there was no remarkable change in the moderate poor, which was 36.3 percent in 1996
and 38.1 percent in 2004. Interestingly the Non-Poor increased from 34.4percent in 1996
to 42.2 percent in 2004. The graph below shows the poverty condition in Nigeria from
1980-2004.
% Poverty Headcount
Fig. 4.1: Trends in Poverty Levels (1980 - 2004)
70
60
50
40
30
20
10
0
1980
1985
1992
1996
2004
Year
Source: NBS (2005)
On poverty and inequality, despite great natural wealth, Nigeria is poor and social
development limited. Thus, the plan for prosperity must address a bewildering paradox:
about two-thirds of the Nigerian people are poor, despite living in a country with vast
potential wealth. Although revenues from crude oil have been increasing over the past
decades, Nigerians have been falling deeper into poverty. In 1980 an estimated 27
percent of Nigerians lived in poverty. By 1999, about 70 percent of the population had
income of less than $1 a day-and the figure has risen since then. Poverty levels vary
across the country, with the highest proportion of poor people in the northwest and the
lowest in the southeast.
34
4.3 Poverty in urban and rural areas of Nigeria
In 1996 urban non-poor was 41.8 percent as against 64.7percent in 2004. This showed a
remarkable improvement on the consumption patterns of the urban dwellers. There was 3
percent positive change in the moderate poor from 33.0 percent in 1996 to 29.8 percent in
2004. The growing urban poverty noticed in 1996 has completely disappeared from
25.2percent in 1996 to 5.6 percent in 2004. Most importantly Rural Non-poor moved
from 30.7percent in 1996 to 35.9 percent in 2004. This also showed a positive change of
5percent for the rural dwellers. The moderately poor also changed negatively from
38.2percent to 40.5percent in 2004 while the core poor of 31.6 percent in 1996 dropped
to 23.6 percent. This explains the rise of moderately poor persons.
Table 4.2: Poverty Headcount (in %) by Sector (Urban/Rural)
URBAN
Year
Non Poor
RURAL
Mod Poor
Core Poor
Non Poor
Mod Poor
Core
Poor
1980
82.8
14.2
3.0
71.7
21.8
6.5
1985
62.2
30.3
7.5
48.6
36.6
14.8
1992
1996
2004
62.5
41.8
64.7
26.8
33.0
29.8
10.7
25.2
5.6
54.0
30.7
35.9
30.2
38.2
40.5
15.8
31.6
23.6
Source: NBS (2005)
The rural poverty which was 69.8 percent in 1996 dropped to 64.1 percent in 2004 while
the urban poverty which was 58.2 percent in 1996 reduced drastically to 35.4 percent in
2004. The report noted that the steady decrease of the poor in the rural areas is highly
noticeable; the urban poverty seems to be disappearing fast with 35.4 percent being better
than the percentage in poverty in 1985 which was 37.8percent. In 1996 all states were in
Poverty except one state with 44.3percent incidence of poverty. Among those state
noticeably in 2004, a total of 13 states had moved out of poverty starting with Kwara
43.25 percent poor to Lagos 11.81 percent poor people. A graphical presentation of the
state poverty showed that while poverty incidence was declining in some states, it was
actually increasing in states like Jigawa, Kebbi and Yobe. This surveys represent a rich
source on many dimension of poverty at the Household and individual level.
35
4.4 Growth Rate of Poverty in Nigeria
Table 4.3 shows that the manufacturing sector with poverty growth of 155% from the
base incidence rate of 12.4% in 1980, clerical and related workers with growth rate of
191% from 10% in 1980 and ‗Others‘ Category that experienced over 2000% drop in
standard of living within the short period 1980-1985 were the worst hit by the crises of
that characterized this period. While SAP was regarded by many as sad chapter in
Nigeria‘s economic development, the data show that actually poverty fell relatively
within this period in almost all the sectors.
Table 4.3: Percentage Growth Rate of Poverty 1985 – 2004
Occupation of Household Head
1985
1992
1996
Professional & Technical
105.8% 0.3%
45.1%
Administration
-43.8% -11.9% 50.2%
Clerical & related
191.0% 18.2% 74.7%
Sales Workers
144.0% -8.5%
69.3%
Service Industry
78.4% 0.5%
86.9%
Agricultural & Forestry
69.8% -10.5% 48.2%
Production & Transport
100.9% -12.4% 61.3%
Manufacturing & Processing
155.6% 4.7%
48.8%
Others
2353.3% 16.3% 43.0%
Student & Apprentices
159.6% 3.2%
25.4%
Total
70.2% -7.8%
53.6%
2004
-34.0%
35.2%
-34.8%
-22.0%
-39.8%
-5.6%
-35.4%
-10.5%
-19.8%
-20.6%
-17.1%
The political upheaval that marked the period following the annulment of the June 1992
free elections resulted to deepening of poverty by 1996. All the sectors except the
administrative workers experienced improvement in standard of living by 2004 following
economic reforms that were instituted by the Obasanjo regime which was elected in
1999. These improvement in general welfare could be said to result from improvements
in the international oil prices, and the political stability that led to positive economic
growth which has since characterized the rest of the first decade of the century.
36
4.5 Poverty decomposition in Nigeria
In order to ascertain the severity of poverty in Nigeria, we decomposed the poverty into
sectors taking poverty line to (3000). The FGT poverty gap index, which adds up the
extent to which individuals on average fall below the poverty line, and expresses it as a
percentage of the poverty line indicates that average poverty gap is 0.9% and the same
with the normalized poverty gap. The population share of poverty going by the result of
the decomposition by sub group shows that population share of poverty concentrate at the
rural areas with 0.75 indicating that 75 percent of the poor people in the country reside in
the rural areas compares to 24 percent living in the urban areas.
The summary statistic for the subgroup shows that the mean gap between the urban and
the rural poor shows 2.31 for the rural poor compares to 2.28 of the urban poor. The
results equally indicate that that both the rural and urban poor equally share the same
poverty risk. The Generalized Entropy indices indicate that
the Gini index of income
inequality was 0.29584. This goes inline with the previous findings for instance, The
World Bank (2003) found that in 1997, the Gini index of income inequality for Nigeria
was 0.506 whil;e Oyekale et al, (2007) found that the overall Gini index for Nigeria was
0.580. In sectoral sense, the study found income inequality in rural areas (Gini 0.29484 )
as compared to urban areas (Gini – 0.29880).the within group inequality result shows
(0.13263) while between group inequality indicates (0.00003) value.
Table 4.4: poverty decomposition in Nigeria
. povdeco pov,pline (3000)by (sector)
Foster-Greer-Thorbecke poverty indices, FGT (a)
---------------------------------------------All obs |
a=0
a=1
a=2
----------+----------------------------------| 1.00000 0.99923 0.99846
---------------------------------------------FGT(0): headcount ratio (proportion poor)
FGT(1): average normalised poverty gap
FGT(2): average squared normalised poverty gap
37
Decompositions by subgroup
Summary statistics for subgroup k = 1,...,K
---------------------------------------------------------------------urban or |
rural | Pop. share
Mean
Mean|poor Mean gap|poor
----------+----------------------------------------------------------urban |
0.24251
2.28907
2.28907 2997.71093
rural |
0.75749
2.31381
2.31381 2997.68619
.|
---------------------------------------------------------------------Subgroup FGT index estimates, FGT(a)
---------------------------------------------urban or |
rural |
a=0
a=1
a=2
----------+----------------------------------urban | 1.00000 0.99924 0.99847
rural | 1.00000 0.99923 0.99846
.|
---------------------------------------------Subgroup poverty 'share', S_k = v_k.FGT_k(a)/FGT(a)
---------------------------------------------urban or |
rural |
a=0
a=1
a=2
----------+----------------------------------urban | 0.24251 0.24251 0.24251
rural | 0.75749 0.75749 0.75749
.|
---------------------------------------------Subgroup poverty 'risk' = FGT_k(a)/FGT(a) = S_k/v_k
---------------------------------------------urban or |
rural |
a=0
a=1
a=2
----------+----------------------------------urban | 1.00000 1.00001 1.00001
rural | 1.00000 1.00000 1.00000
.|
----------------------------------------------
38
. ineqdeco hhsize_1,by(sector)
Percentile ratios
---------------------------------------------------------All obs | p90/p10 p90/p50 p10/p50 p75/p25
----------+----------------------------------------------| 6.996
1.566
0.224
2.561
---------------------------------------------------------Generalized Entropy indices GE(a), where a = income difference
sensitivity parameter, and Gini coefficient
---------------------------------------------------------------------All obs | GE(-1)
GE(0)
GE(1)
GE(2)
Gini
----------+----------------------------------------------------------| 1.64604 0.25833 0.15917 0.13266 0.29584
---------------------------------------------------------------------Atkinson indices, A(e), where e > 0 is the inequality aversion parameter
---------------------------------------------All obs | A(0.5)
A(1)
A(2)
----------+----------------------------------| 0.09317 0.22766 0.76701
---------------------------------------------Subgroup summary statistics, for each subgroup k = 1,...,K:
----------------------------------------------------------------------urban or |
rural | Popn. share
Mean __00000F __00000I log(mean)
----------+-----------------------------------------------------------urban | 0.24251 51934.75958 0.98540 0.23897 10.85774
rural | 0.75749 52950.26674 1.00467 0.76103 10.87711
.|
----------------------------------------------------------------------Subgroup indices: GE_k(a) and Gini_k
---------------------------------------------------------------------urban or |
rural | GE(-1)
GE(0)
GE(1)
GE(2)
Gini
----------+----------------------------------------------------------urban | 1.82782 0.26286 0.16181 0.13511 0.29880
rural | 1.58650 0.25684 0.15830 0.13185 0.29484
.|
----------------------------------------------------------------------
39
Within-group inequality, GE_W(a)
---------------------------------------------------------All obs | GE(-1)
GE(0)
GE(1)
GE(2)
----------+----------------------------------------------| 1.64600 0.25830 0.15914 0.13263
---------------------------------------------------------Between-group inequality, GE_B(a):
---------------------------------------------------------All obs | GE(-1)
GE(0)
GE(1)
GE(2)
----------+----------------------------------------------| 0.00003 0.00003 0.00003 0.00003
---------------------------------------------------------Subgroup Atkinson indices, A_k(e)
---------------------------------------------urban or |
rural | A(0.5)
A(1)
A(2)
----------+----------------------------------urban | 0.09463 0.23115 0.78521
rural | 0.09269 0.22651 0.76036
.|
---------------------------------------------Within-group inequality, A_W(e)
---------------------------------------------All obs | A(0.5)
A(1)
A(2)
----------+----------------------------------| 0.09315 0.22762 0.76630
---------------------------------------------Between-group inequality, A_B(e)
---------------------------------------------All obs | A(0.5)
A(1)
A(2)
----------+----------------------------------| 0.00002 0.00006 0.00304
----------------------------------------------
40
4.6 Economic growth and poverty reduction in Nigeria
Economic reform in Nigeria was taken to a higher platform with the launching in mid –
2004 of National Economic Empowerment and Development Strategy (NEEDS). The
package recognizes the fact that for economic reform to be successful it must be anchored
on institutional reform, hence the latter forms a key component of NEEDS. This marks a
notable departure from earlier reform efforts. According to Federal Government of
Nigeria (FGN) report (2004) ―NEEDS has as its focus wealth creation, employment
generation, poverty reduction, corruption eradication and general value re-orientation‖.
Like earlier reform packages, the strategy considers economic growth as crucial to
poverty reduction.
4.7 Pro-poor growth in Nigeria
Recognizing that there is a degree of uncertainty about the location of a poverty line, it
can be important to look at impacts of aggregate economic growth over a wide range of
the distribution. A useful tool for this purpose is the ―growth incidence curve‖ introduced
by Ravallion and Chen (2003). This gives the rate of growth over the relevant time period
at each percentile of the distribution (ranked by income or consumption per person).
Following the Ravallion and Chen (2003) and poverty growth curve based on the
framework of Son (2004) measures of poverty growth incidence, the result of poverty
growth in Nigeria is therefore presented: In the figure below, The horizontal line (in red)
denotes the average overall growth rate (i.e. g ). It is important to note that the result
based on this framework does not rely on the specification of any poverty line. Based on
the chart, if the growth rate at the bottom p percentile is greater than the overall growth
rate (i.e. g( p) > g for all p < 100 ), growth within the period 1996-2004 is pro-poor.
However, the poverty growth curve shows that up until the poorest 80 per cent of the
population, growth is not pro-poor. This is because g( p) < g for p < 80 . However, the
upward sloping nature of the curve implies that generally, there are improvements as you
move up the ladder but such improvements do not imply pro-poor growth for the poorest
segments of Nigeria.
41
6
4
2
g(p)
8
10
Figure 4.2 : Poverty growth curve (1996-2004)
0
.2
.4
.6
.8
1
Percentile
The Figure 4.2 shows that g( p) > 0 for all p < 100% . This implies that growth reduces
poverty (across all percentiles) but is accompanied with increasing inequality (trickledown growth) where the poor receive proportionally less benefits than the non-poor from
the process of growth. These show that even though national poverty statistics indicate a
decline of poverty headcount from about 66% (1996) to 54% (2004), and an increment in
growth over the same period, the dividends from growth is disproportionately benefiting
the rich than the poor. This works through the inequality linkage.
Equally, the dual pro-poor curves which goes in line with works of Abdelkrim and
Duclos( 2007) is presented. Form the graph in figure below, the results is similar to the
poverty growth curves. In Figure 4.3, on an absolute level, the changes in the quantiles at
percentile p show that the overall growth rate is generally higher for lower percentiles.
We must note that the absolute pro-poor curve does not take into account growth in mean
expenditure.
A common empirical finding in the recent literature is that changes in inequality at the
country level have virtually zero correlation with rates of economic growth; see, for
42
example, Ravallion and Chen (1997), Ravallion (2001), Dollar and Kraay (2002).
Amongst growing economies, inequality tends to fall about as often as it rises, i.e.,
growth tends to be distribution neutral on average.
Figure 4.3 : Absolute pro-poor growth curves (Dual Approach)
Absolute propoor curves
0
5
10
15
(Order : s=1 | Dif. = ( Q_2(p) - Q_1(p) ) / Q_2(p) )
0
.2
.4
.6
.8
1
Percentiles (p)
Confidence interval (95 %)
Estimated difference
In Figure 4.3, this can be verified using the relative pro-poor curves. At all percentiles
below 70%, the curve lies below the horizontal line (zero). The curve is only above the
horizontal line at the top percentiles. These figures also show that while growth has been
positive between the periods (1996-2004), it is benefiting the rich more than it does to the
poor because of the increasing inequality in incomes.
Figure 4.4: Relative pro-poor growth curves (Dual approach)
Relative propoor curves
-10
-5
0
5
(Order : s=1 | Dif. = Q_2(p) /Q_1(p) - mu_2/mu_1 )
0
.2
.4
.6
.8
Percentiles (p)
Confidence interval (95 %)
Estimated difference
1
43
In Figure 4.4, the relative pro-poor curve using the primal approach Abdelkrim and
Duclos, 2007 is presented. Here, the national poverty line (in real terms) was used.
Growth is pro-poor only when the curve lies below the horizontal line (zero). From the
chart, for all poverty lines below N 1600, the curve lies above the horizontal line
signifying that growth was not pro-poor. Pro-poor growth may be observed only when
poverty lines are raised. It is important to note that this does not take into account the
distribution of the variable of interest. Only mean expenditures and poverty headcounts
are relevant.
Figure 4.5: Relative pro-poor growth curves (Primal approach)
Relative propoor curve
-.05
0
.05
.1
.15
.2
(Order : s=1 | Dif. = P_2( (m2/m1)z, a=s-1) - P_1(z,a=s-1))
0
1600
3200
4800
6400
8000
Poverty line (z)
Confidence interval (95 %)
Estimated difference
While the curves presented are informative, they do not provide an ‗index‘ to assess
overall pro-poorness of growth in Nigeria.
In Tables 4.6 – 4.7 we present results showing selected pro-poor growth indices using the
FGT() (Foster et. al., 1984) class indices. In Table 46, poverty headcount ( = 0) was
used as the measure of poverty. Table 4.7uses the poverty intensity measure ( = 1)
while Table 4.8 uses the poverty severity measure ( = 2). It is important to note that the
Ravallion and Chen (2003) measure requires only the headcount measure. This accounts
for the same value of the index across all tables.
44
Table 4.6: Selected pro-poor indices ( = 0)
Poverty line : 2645.00
Parameter alpha :
0.00
----------------------------------------------------------------------------------------------Pro-poor indices |
Estimate
STE
LB
UB
------------------------------+---------------------------------------------------------------Growth rate(g) |
7.982741
0.346410
7.303790
8.661691
------------------------------+---------------------------------------------------------------Ravallion & Chen (2003) index | 0.926187
0.016550
0.893750
0.958624
Ravallion & Chen (2003) - g | -7.056554
0.342562
-7.727962
-6.385145
------------------------------+---------------------------------------------------------------Kakwani & Pernia (2000) index | 0.778632
0.010212
0.758618
0.798647
------------------------------+---------------------------------------------------------------PEGR index |
6.215619
0.283503
5.659963
6.771275
PEGR - g |
-1.767122
0.110670
-1.984030
-1.550213
----------------------------------------------------------------------------------------------From the tables above, the overall growth rate is 7.98% (with standard error of 0.35%).
To assess the extent of pro-poorness, this is compared with the respective indices (except
for the Kakwani and Pernia index). The Ravallion & Chen (2003) index of 0.93 implies
that growth over the period 1996 – 2004 is not pro-poor. Specifically, this can be
understood as a trickle-down growth because (0.93 < 7.98). The Kakwani et. al. (2004)
measure uses the Poverty Equivalent Growth Rate (PEGR) (*). This is the growth rate
that would produce the same level of poverty reduction as the actual growth rate would,
provided that inequality reductions accompany the growth process (Kakwani et. al.
2004). If * > g (i.e. the overall growth rate), then we have a pro-poor growth. If (0 < *
< 1), we have a trickle down growth; and if (* < 0), we have an immiserizing growth.
From Table4.6, the PEGR is less than the actual growth rate (i.e. 6.22% < 7.98%). This
implies that we observe a trickle-down growth which is not necessarily pro-poor in the
strict sense. This is also consistent with the results of the Son (2004) growth poverty
curve and that obtained using the Ravallion and Chen approach. For the Kakwani and
Pernia index (), if  > 1, it implies that the growth process is pro-poor; if 0 <  < 1 the
growth process is described as a trickle-down and if  < 1 the growth process is described
as immiserizing. In this case, we have that 0 <  < 1 which again confirms a trickle
down growth process between the period of 1996 – 2004.
45
Table 4.7: Selected pro-poor indices ( = 1)
Poverty line : 2645.00
Parameter alpha:
1.00
----------------------------------------------------------------------------------------------Pro-poor indices |
Estimate
STE
LB
UB
------------------------------+---------------------------------------------------------------Growth rate(g) |
7.982741
0.346410
7.303790
8.661691
------------------------------+---------------------------------------------------------------Ravallion & Chen (2003) index | 0.926187
0.016550
0.893750
0.958624
Ravallion & Chen (2003) - g | -7.056554
0.342562
-7.727962
-6.385145
------------------------------+---------------------------------------------------------------Kakwani & Pernia (2000) index | 0.754256
0.007285
0.739977
0.768535
------------------------------+---------------------------------------------------------------PEGR index |
6.021033
0.282218
5.467895
6.574170
PEGR - g |
-1.961708
0.089574
-2.137271
-1.786146
----------------------------------------------------------------------------------------------Even using different poverty measures as shown in Tables 4.7 and 4.8, the growth
process is not pro-poor. All the results shown are statistically significant at 5% level
Table 4.8: Selected pro-poor indices ( = 2)
Poverty line : 2645.00
Parameter alpha: 2.00
----------------------------------------------------------------------------------------------Pro-poor indices |
Estimate
STE
LB
UB
------------------------------+---------------------------------------------------------------Growth rate(g) |
7.982741
0.346410
7.303790
8.661691
------------------------------+---------------------------------------------------------------Ravallion & Chen (2003) index | 0.926187
0.016550
0.893750
0.958624
Ravallion & Chen (2003) - g | -7.056554
0.342562
-7.727962
-6.385145
------------------------------+---------------------------------------------------------------Kakwani & Pernia (2000) index | 0.770739
0.007849
0.755355
0.786123
------------------------------+---------------------------------------------------------------PEGR index |
6.152610
0.290158
5.583911
6.721309
PEGR - g |
-1.830130
0.086957
-2.000564
-1.659697
-----------------------------------------------------------------------------------------------
A comparison of all the methods used show that there is some level of concordance in
predicting the nature of growth in Nigeria between 1996 and 2004. Because these
46
methods use different evaluative frameworks, we cannot compare the magnitudes of their
indices. However, the overall picture is still illuminating.
Even though there was
remarkable growth experience over the period in Nigeria, it did not translate into a
reduction in inequality. Though the growth process in Nigeria was able to reduce the
magnitude of poverty to some extent, this did not translate to improvements in inequality.
47
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary of findings
The concept of poverty has evolved in the history of economic thoughts, witnessing
different stages of transition since the 18th century. The post-colonial period has been
characterized by a deliberate transfer from the North to the South of the anti- poverty
polices development in Europe during the nineteenth and twentieth centuries. Poverty has
been traditionally understood to mean a lack of access to resources, productive assets and
income resulting in a state of material deprivation. Poverty reduction has received
increased focus in development debate in the past two decades. Progress on poverty
reduction has become a major measure of success of development policy. The Nigerian
economy naturally endowed with immense wealth, still found a substantial portion of its
population still in poverty. Nigeria‘s basic social indicators now place her as one of the
25 poorest countries in the world. The economy has recorded a rising growth in its GDP
especially over the last decades but has not translated into accelerated employment and
reduction in poverty among its citizens.
Nigeria implemented Structural Adjustment Programme (SAP) policies in the 1980s,
which continued in varying degrees till the late 1990s. The new democratic government
in 1999 introduced further series of reforms, culminating in the National Economic
Empowerment and Development Strategy (NEEDS) launched in mid-2004. Following
the reforms, the real growth rate became positive from 1988, turning from an average of
minus 1.7 per cent in 1980/86 to 4.7 percent in 1986/92. The strong growth performance
continued in the 1990s and into the 2000s, rising to 6.6 percent in 2002/2004 and 6.24
percent in 2004/2006.
48
5.2 Conclusion
In conclusion, the national poverty incidence result shows 65.6 percent in 1996 and
declined to 54.4 percent in 2004. The poverty depth (P1) and poverty severity (P2) were
0.358 and 0.207 in 1996 but these decreased respectively to 0.225 and 0.122 in 2004.
Estimates of inequality also indicate that Nigeria has more unequal distribution of income
than Ethiopia, Madagascar, India, and Niger. Further analysis also suggests that poverty
in Nigeria is predominantly a rural phenomenon, with rural poverty increasing from 28.3
percent in 1980 to 63.8 percent in 2004. The proportion of the urban poor also rose from
17.2 percent in 1980 to 43.1 percent in 2004.
The result shows that rural areas
approximately 44.4 percent of households in 2004 could not meet their food expenditure
requirements, 19.4 percent could meet their food expenditure requirements, but not the
minimum expenditure to cover other basic needs. For the urban households, 26.7 percent
were not able to meet their required food expenditure requirements while 16.4 percent
could meet their food expenditure but not other non-food basic expenditure needs.
Sectoral decomposition of poverty in Nigeria the FGT poverty gap index indicates that
average poverty gap is 0.9%. the decomposition by sub group shows that population
share of poverty concentrate at the rural areas with 0.75 indicating that 75 percent of the
poor people in the country reside in the rural areas compares to 24 percent living in the
urban areas. The summary statistic for the subgroup shows that the mean gap between the
urban and the rural poor shows 2.31 for the rural poor compares to 2.28 of the urban
poor. The results equally indicate that that both the rural and urban poor equally share the
same poverty risk. The Generalized Entropy indices indicate that the Gini index of
income inequality was 0.29584 for the year 2004.
The poverty growth curve shows that up until the poorest 80 per cent of the population,
growth is not pro-poor. The dual pro-poor curve shows that the changes in the quantiles
at percentile p show that the overall growth rate is generally higher for lower percentiles.
The relative pro-poor curve shows that while growth has been positive between the
periods (1996-2004), it is benefiting the rich more than it does to the poor because of the
49
increasing inequality in incomes. The pro-poor growth result obtained indicates that the
overall growth rate is 7.98% (with standard error of 0.35%). The PEGR measure shows a
trickle-down growth which is not necessarily pro-poor. The overall pro-poor growth
result indicate that though the growth process in Nigeria was able to reduce the
magnitude of poverty to some extent, this did not translate to improvements in inequality
5.3 Recommendations
Based on the findings, the following recommendations are therefore made:
(i) There should be improvement in the quality of government spending in Nigeria. Fiscal
policy expansion should tend towards increasing the component of government
expenditure that will lead to a sustained growth and also an improvement in the standard
of living of the citizens
(ii) The Federal government should support value creation in critical sectors of the
Nigerian economy which employs large population like agriculture and industry in order
to make growth pro-poor
(iii) In order to be able to reap the benefits of a positive external shock-there is a need to
increase the level of competitiveness and the productive capacity of the country
(iv) Investment in basic infrastructures such as power and roads are very crucial at this
stage of the Nigerian economy
(v) A policy that should have direct impact on the rural poor should be adopted by the
Federal government in tackling poverty issues in Nigeria