Poverty and Inequality Among Rural Households in Nigeria

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Poverty and Inequality Among Rural Households in
Nigeria

• Presented at the AERC Dissemination workshop held
  at UNECA Conference Centre, Addis Ababa
• 19 September 2006

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Outline of the Presentation

• Background
• Methodology
• Findings
• Rural poverty profile
• Determinants of rural Poverty
• Social Capital and Poverty
• Inequality profile
• Poverty Response
• Policies and programmes of government
• Summary and Recommendations

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Background

• Poverty is increasingly being recognised as both
  a policy and economic problem in Nigeria.
• This is stressed by the
• Nigerian Poverty Reduction Strategy Paper called
  NEEDS document
• Poverty and Vulnerability Assessment of the
  country
• Voices of the Poor in Nigeria

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Why Rural Poverty?

• Consensus in the literature on poverty is that,
  Poverty is a rural phenomenon (World Bank, 1990
  Fields, 2000).
• The rural sector is the predominant sector in the
  Nigerian economy.
• More households are in the rural sector
• Most people are employed in rural sector
• It plays some fundamental roles, which include
  job creation at relatively low unit costs, and
  thus remains the most important for economic
  growth
• The importance of the rural poor is not always
  understood, partly because the urban poor are
  more visible and more vocal than their rural
  counterparts.

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Objective of the Study

• objective of our research is to examine the
  determinants of poverty and factors of inequality
  in rural Nigeria.

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Collaborative II Poverty Research

• Output of our component of the research includes
  four research reports
• Inequality in the Distribution of Household
  Expenditure in Rural Nigeria A Decomposition
  Analysis
• Policies and programmes for poverty reduction in
  rural Nigeria
• Social capital and poverty reduction in Nigeria
• Human Capital, Capabilities and Poverty in Rural
  Nigeria

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Methodology

• Methodology and analysis are hinged on the
  following procedure.
• The definition of an indicator of welfare so as
  to identify the poor.
• Choice of poverty (and inequality) indices
• The econometric procedure to better understand
  the effects of human capital, social capital and
  local level institutions on rural poverty in
  Nigeria

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Indicator of Welfare

• We utilised per capita expenditure as our measure
  of household economic welfare.
• Four main reasons that are identified in the
  literature why consumption or expenditure is
  preferred to income
• income is only a measure of welfare opportunity
  and not welfare achievement
• Expenditure fluctuates less than income and thus
  provides more accurate and stable measure of
  welfare.
• respondents to survey instrument are more willing
  to give their expenditure information than income
  information,
• where there is a large proportion of self
  employed and own consumption, measurement of
  income is often fraught with difficulties.

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Choice of poverty index

• FGT indices that we intend to use are
• P0, which is the headcount ratio,
• proportion of the total population of a given
  group that is poor, based on a given poverty
  line.
• P1, which is the poverty gap index
• poverty gap refers to the difference between a
  given poverty line and the mean income or
  expenditure of the poor, expressed as a ratio of
  the poverty line.
• the poverty severity index, P2.
• the squared gap takes the square of that distance
  into account.
• These indices shall thereafter be decomposed
  according to the characteristics of the household
  including human capital and capabilities
  variables.

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The econometric procedure

• The approach in this study is to combine
  different approaches in achieving our objectives.
  
• We model the determinants of the indicator of
  welfare usually income, consumption or
  expenditure
• Estimation techniques
• Probit (for determinants of probability of being
  poor)
• OLS (for examining determinants of poverty)
• Tobit (for investigating determinants of social
  capital on poverty)

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Inequality

• Inequality Index must satisfy some basic
  properties
• Pigou-Dalton transfer sensitivity
• Symmetry
• mean independence
• population homogeneity
• decomposability
• statistical testability.

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Inequality

• generalised entropy measures and the Gini are the
  measures of inequality that are utilised in this
  study
• Gini index
• Mean log deviation
• GE(1) Theil Entropy index
• GE(2) generalised Entropy index

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Decomposition of Inequality

• The degree of measured inequality of the
  distribution of an income variable can be
  decomposed into a component of inequality between
  the population groups Ib and the remaining
  within-group inequality Iw.
• The decomposition by population subgroups of the
  GE class is defined as
• Inequality within-group inequality
  between-group inequality

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Data

• Merged data from the 1996 General Household
  Survey (GHS) and the National consumer survey
  (NCS) conducted by the Federal Office of
  Statistics as supplemental modules under the
  National Integrated Survey of Households (NISH).
• Complemented by private survey in six states to
  collect additional data collected by the
  researchers especially for the social capital
  variables

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Poverty profile of rural Households
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Poverty profile of rural Households
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Poverty profile of rural Households
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Poverty profile of rural Households
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Poverty profile of rural Households
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Determinants of Rural Poverty

• Age of household head
• Quadratic relationship
• Poverty initially reduces as age of household
  head increases and after a certain threshold,
  poverty starts increasing as the household head
  grows older.
• reflects the situation where there is higher
  earning capacity with greater experience and age
  thereby leading to consumption smoothing over the
  life cycle. The magnitude of the quadratic
  parameter is however very low.

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Determinants of Rural Poverty

• Gender
• female headed household has a higher probability
  of being poor than the male headed households
• Farming Households
• In addition, households whose head are engaged in
  farming activity have a higher probability of
  being poor and the marginal effect shows that
  this is as about 4 percent.

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Determinants of Rural Poverty

• Demographic variables (household size and
  structure
• Household size has a significant negative effect
  on welfare indicating that the larger the
  household size, the lower the per capita
  expenditure.
• Household composition matters
• An that an increase in either the number of
  children or old people in the household will
  reduce the overall welfare level of the household
  
• Presence of extra adult has higher depressing
  effect than that of a child

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Educational Attainment

• The educational attainment of the household head
  is a major factor in the determinant of welfare
  in the households.
• education attainment has a strong positive effect
  on the welfare status of the households.
• education reduces the probability of being poor
  in a household
• the largest impact is for those who have up to
  post-secondary education, followed by those with
  primary education.

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Education
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Social Capital Dimension by Gender
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Poverty Alleviation Policies and Programmes

• Agricultural development programmes
• Promotion of small-scale irrigation (Fadama
  Farming)
• Agricultural Development Programmes
• National Agricultural Land Development Authority
• The Strategic Grains Reserves Programmes etc
• Non-Farming Programmes
• Establishment of the Small and Medium Enterprises
  development Agencies (SMEDAN) for the development
  of small and medium scale enterprises in the
  country.
• National Directorate of Employment

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Poverty Alleviation Policies and Programmes

• Micro-Credit
• Community Banks
• Nigerian Agricultural, Cooperative and Rural
  Development Bank (NACRDB) have as its main
  thrusts, the establishment of its presence in
  rural Nigeria to offer commercial and development
  Banking services
• Agricultural Credit Scheme Funds (ACGF)

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Poverty Alleviation Policies and Programmes

• Health Sector Programmes
• Primary Health Care (PHC) Scheme,
• National Programme on Immunisation
• Guinea-worm Eradication Programme
• Education Sector,
• Universal Basic Education
• Nomadic Education Programme, etc.

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Poverty Alleviation Policies and Programmes

• Coordination of Poverty Alleviation agencies
• Establishment of National Poverty Eradication
  Programme (NAPEP ) to serve as a coordinating and
  monitoring institution for all poverty
  eradication agencies in the country

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Summary

• Poverty is widespread in rural Nigeria and those
  engaged in farm activities are poorer than those
  engaged in non-farming activities.
• Human capital and capabilities have significant
  effects in determining poverty status of rural
  households in Nigeria.
• Households with higher social capital are less
  poor using different dimensions of poverty.
• The social capital dimensions of meeting
  attendance, heterogeneity index and labour
  contribution in LLIs significantly reduce the
  probability of being poor.

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Summary

• The level of diversity among members of LLIs,
  meeting attendance and labour contribution score
  have positive influence on the per capita
  expenditure of households.
• The test of reverse causality between social
  capital and household expenditure indicates that
  the direct effect of social capital on welfare
  outweighs the reverse effect in the explanation
  of the correlation between the two variables.
• Social capital can complement human capital
  endowment in enhancing welfare and reducing
  poverty.

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Summary

• We however found that most of the inequality
  exists within group and not much of differences
  in groups explain appreciable levels of
  inequality in Nigeria except for educational
  attainment of household head and the geopolitical
  zones that the household belong.
• 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.

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Summary

• Most poverty alleviation 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 empower the poor, but they
  are found wanting in the areas of pro-poor growth
  and resource redistribution.
• Coordination and monitoring of poverty
  alleviation efforts in the country are found
  wanting

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Recommendations

• Human capital and capabilities in rural
  households should be addressed through provision
  of adequate education and health to individuals
  especially in rural areas.
• There is the need for better provision of social
  services, infrastructure and public goods.
• The effort of poverty alleviation strategies
  should also be geared to empowerment. Through
  political and legal basis for inclusive
  development
• Public administration that fosters growth and
  equity and promotion of inclusive
  decentralization and community development is
  required.

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Recommendations

• Promotion of gender equity, tackling of social
  barriers and support of poor peoples social
  capital needs to be done to enhance empowerment
  of the poor.
• This calls for a need to formulate an approach to
  helping poor people to manage risk. This calls
  for designing national systems for social risk
  management and addressing civil conflicts.
• Policies adopted should be consistent and
  sustainable. There is the need for an articulated
  policy document for poverty alleviation in
  Nigeria.

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• Thanks