Income Redistribution, Growth and Poverty Dynamics during the Period of Economic Reforms in Nigeria

By Oyekale, A. S.; Adeoti, A. I. et al. | IUP Journal of Applied Economics, April 2011 | Go to article overview

Income Redistribution, Growth and Poverty Dynamics during the Period of Economic Reforms in Nigeria


Oyekale, A. S., Adeoti, A. I., Oyekale, T. O., IUP Journal of Applied Economics


Income inequality and poverty in Nigeria are closely related. This study decomposed change in poverty in Nigeria into the growth and redistribution components using income and expenditure. Household survey data collected by the National Bureau of Statistics in 1998 and 2004 were used. Results show that in 2004, income inequality was higher in rural areas than urban areas. Income poverty head count in 1998 was 40.51%, and this increased to 51.59% in 2004. However, expenditure poverty head count decreased from 62.22% in 1998 to 54.37% in 2004. Within the limit of possible poverty lines, rural poverty was significantly higher than urban poverty during the two periods. Income growth reduced poverty where positive growth was obtained and redistribution reduced poverty where the Gini coefficient declined and vice versa. It was asserted that expenditure data are by far better than income for poverty assessment and recommended that welfare enhancing programs that will benefit urban/rural poor should be identified, while better economic opportunities should be created for those in rural areas in the process of the on-going economic reforms in Nigeria.

(ProQuest: ... denotes formulae omitted.)

Introduction

Nigeria is Africa's most populous country and the third largest economy in the continent. Since its independence in 1960, the economy has witnessed fluctuating growth, declining per capita income and comparatively unfavorable social indicators. Adverse macroeconomic shocks that inhibit economic growth, and inability of some proposed reforms to tactically address unfavorable macroeconomic performances are notable, among the factors that contributed to increasing poverty (Aigbokhan, 2000). Available evidences show that the proportions of poor people, on the basis of basic human needs, were 27.2% in 1980, 46.3% in 1985, 42.8% in 1992, and 65.6% in 1996 (World Bank, 1996; Canagarajah et al., 1997; and Okojie et al., 2001). The most recent poverty assessment study shows that 54.4% of the population was poor in 2004 (FRN, 2006). Similarly, more than 70% of the people were poor, living on less than $1 a day, while the Human Development Index of 0.448 ranked 159th among 177 nations in 2006. These scenarios vividly portray the country as one of the poorest in the world (IMF, 2005; and UNDP, 2006).

Many macroeconomic and microeconomic variables intertwined to result in deplorable economic situation in Nigeria. Precisely, poverty problem can be traced to inconsistent economic growth. The Gross Domestic Product (GDP) grew at an average rate of 3.1% between 1960 and 1970. With the oil-boom between 1970 and 1978, GDP grew at the rate of 6.2%. The economic recession of the 1980s worsened the nation's economic fortunes, leading to declining economic growth, increasing unemployment, galloping inflation, high incidence of poverty, worsening balance of payment conditions, debilitating debt burden and increasing fiscal deficits, among others. Available data show that during the period 1988-1997 on average a 4% annual growth rate of GDP was recorded. Further, annual growth rates of GDP were 1.3% in 1994, 2.2% in 1995, 3.3% in 1996, 3.8% in 1997 and 2.4% in 1998.

Therefore, the need for economic reforms, that are meant to put the nation on the path of sustainable economic growth and development, cannot be overemphasized for rapid poverty alleviation. After the Austerity Measures of 1982 failed to yield desired results, the Structural Adjustment Program (SAP) was implemented in 1986. The objectives of SAP were to restructure and diversify the productive base of the economy in order to reduce dependence on the oil sector and imports, achieve fiscal and balance of payments viability, ensure sustainable noninflationary or minimal inflationary growth, and reduce the dominance of unproductive investments in the public sector, among others. Though some benefits were achieved at the initial stage of implementation of SAP, such benefits could not trickle down to the poor. …

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