Economic Growth, Income Redistribution and Poverty Reduction in Rural Nigeria

Abstract

The Nigerian economy over the past few years grew at one of the highest rates in Africa. Yet, this growth has not led to substantial reduction in inequality and poverty, particularly in the rural sector. This was partly attributed to redistributional problem of national wealth which has not been adequately investigated. Therefore, the study assessed the contribution of growth and wealth distribution to poverty reduction in rural Nigeria from 1996 to 2004. Data from the National Consumer Survey (NCS) of 1996 and National Living Standard Survey (NLSS) of 2004 sourced from the National Bureau of Statistics were used. The number of households sampled under the NCS and NLSS were 11,577 and 22,200 respectively. The rural household components of NCS and NLSS totaling 9377 and 14,515 respectively were used. Variables extracted for the study included demographic and socioeconomic characteristics as well as average household expenditure. The data were analysed using Gini, Foster-Greer-Thorbecke measures of poverty, the Shapley decomposition rule in co-operative game theory and Oaxaca-Blinder decomposition technique at p = 0.05. Rural household mean ages in 1996 and 2004 were 44.8 ±13.2 and 43.0 ±14.2 years respectively. Mean family size was 5.4 ± 3.7 in 1996 and 4.9 ± 2.9 in 2004. Gini coefficient and poverty incidence in 1996 were 48.0 and 69.2% compared to 46.0 and 65.1% in 2004 respectively. In 1996, the poverty gap and severity indices were 34.5 and 21.2% respectively while in 2004, the corresponding values were 27.6 and 14.9% respectively. Poverty severity was highest (61.8%) among Remittances Income Earners (RIE) and least (32.8%) among non – farm income earners in 2004. Highest variation (67.1%) in income was among RIE while the least (45.3%) was among agricultural income group. Both economic growth and income redistribution reduced poverty by 0.025 and 0.056% respectively. A 10% decrease in inequality resulted in 0.04 and 2.45% reduction in poverty in 1996 and 2004 respectively. Similarly, a 10% increase in growth in 1996 and 2004 reduced poverty in both periods by 0.02 and 0.23% respectively. Variations in income distribution within the two periods contributed 0.248 to total inequality compared with 0.362 between the two periods. Income distribution disparity within the two periods (0.245) contributed less to poverty than the variation between the two periods (2.934). A 10% increase in growth from 1996 to 2004 reduced poverty by 6.2% and decreased inequality by 3.4%. The respective key determinants of growth for both periods were age of household head (0.011, 0.199), housing (0.038, 0.032), education (0.129, 0.141) and hours worked (0.183×10-4, 0.002). Others were gender (- 0.117, -0.213) and household size (-0.044, -0.140). Economic growth and income redistribution generally ameliorated poverty between 1996 and 2004 in rural Nigeria and the growth facilitating factors comprised quality of housing, education, longer hours of work and being a middle aged household head. The effect of poverty was however more noticeable among remittances income earners.