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

0.58

0.59

0.6

0.61

0.62

0.63

Male Female

Poverty Headcount by gender

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Poverty profile of rural Households

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

No Educ Pry Sec Beyond Sec

Poverty Headcount by Educational Attainment of household head

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Poverty profile of rural Households

0.59

0.6

0.61

0.62

0.63

0.64

Below25

25-34 35-44 45-54 55-64 65 andabove

Poverty Headcount by Age group of household head

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Poverty profile of rural Households

0

0.2

0.4

0.6

0.8

1

0 1 2 3 4 and above

Poverty Headcount by Number of Spouses of household head

56

57

58

59

60

61

62

63

64

65

Small Households MediumHouseholds

Large Households

Poverty Headcount By Household Size

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Poverty profile of rural Households

0.618

0.62

0.622

0.624

0.626

0.628

0.63

Safe water unsafe water

Poverty Headcount by Access to safe water

0.59

0.6

0.61

0.62

0.63

0.64

Good sanitation Bad sanitation

Poverty Headcount

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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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0

10

20

30

40

50

60

70

%

6 7 8 9 10 11 12 13 14 15 16 17

Age

Enrolment Rates of Rural Children By Age

Male

Female

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Education

0

5

10

15

20

25

30

%

10 11 12 13 14 15 16 17

Age

Proportion of Rural Children Who Dropped out of School By Age

Male

Female

05

101520253035404550

%

10 11 12 13 14 15 16 17

Age

Proportion of Rural Children Who Have NeverAttended Formal Schools By Age

Male

Female

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0

5

10

15

20

25

30

35

40

%

Stunting Wasting Underweight

Nutrition Status of Children In Nigeria

National

Rural

Urban

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Social Capital Dimension by Gender

Sex of Household heads Social capital dimension

Male

Female

Cash contribution (naira) Labour contribution (days) Decision making index (G) Meeting attendance index (% ) Heterogeneity index (% ) Percent of household members belonging to LLI s.

15434.48 172.69 57.76 59.33 51.46 37.20

18059.32 36.05 66.95 65.18 54.92 40.85

Total

1889.74

2269.50

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0%10%20%30%40%50%60%70%80%90%

100%

%

gender age rural-urban educ Zones

Decomposition of Inequality Among Rural Households

Betw een group(%)

Within group (%)

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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 people’s 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