An Analysis of the Poverty-Growth – Inequality –Nexus In Nigeria: 1992-2010

An Analysis of the Poverty-Growth – Inequality –Nexus In Nigeria: 1992-2010.

Abstract

The issue of poverty is posing serious threat to the development of the Nigerian economy.  Growth was seen as the driving force for poverty reduction by studies carried out in the 1980s.

But, recent attention has now been shifted to the role of income  distribution  in  reducing  poverty since the yield of growth may not be equally shared and  poverty  not  reduced.

However, a distinct conclusion is yet to be established on the role of inequality in poverty reduction. Analysis on Poverty growth and inequality has received much attention among scholars, both in  Nigeria and various other economies of the world.

However,there seems to be  a gap in literature on the flow of the triangle and the possibility of the  previous levels of poverty, growth and inequality influencing the relationship of the triangle.

Therefore, this research investigated the poverty- growth-inequality-nexus in Nigeria, using  state  data  for  1992 to 2010 in a four year round panel framework.

The study employed a dynamic  simultaneous equation model while the Fixed Effect, Panel Least Square, First Difference Generalized Method-of-Moments and the System Generalized Method-of-Moments (GMM) econometric estimation techniques were used in the  estimation of the  model.

The result  from the study proved the System Generalized Method-of-Moments of estimation to bethe best approach in analyzing the interaction among poverty growth and inequality in Nigeria rather than the other methods.

The result of the empirical study revealed that growth is positively and significantly related to poverty andthere was a negative and significant effect of income inequality on poverty.

Poverty was found not to have any significant effect on growth and inequality. Poverty was positively related to growth and negatively related to inequality.

The result of the study further showed that there is a positive feedback relationship between growth and inequality.

States with high previous poverty levels  tend  to  experience  higher  present levels of poverty and states with high previous levels of growth tend to  experience  higher present level of growth.

Introduction

Background Of Study

The fight against poverty is now one of the main objectives of the development process. It is imperative to view its long-term effects and solutions given its relation with growth and inequality.

This has raised the debate and broadened the spectrum of analysis on the poverty- growth-inequality interrelationships, with halving extreme poverty by 2015  constituting the first, and perhaps the most critical, goal of the Millennium Development Goals (MDGs).

The major concern of world economy is on how to reduce poverty.  Thus,  ensuring that  those in  need get their share of the world’s riches from the large amount of wealth created in the past century (Todaro and Smith, 2006).

There is no single definition of poverty. Poverty can be defined  based  on  individual’s perception under different circumstances. However, in a simple form, it is defined as a state of deprivation or lack of resources to meet basic needs.

According to Todaro and Smith (2006),  “the poor can be defined as the number of people living below a given minimum level of ‘income’-an imaginary international poverty line which recognizes neither national boundaries nor levels of national per capita income” “Human Poverty is  more than  income poverty;  it  is the denial of choices and opportunities for living a tolerable life” (United Nations, 1997).

Sen (1999) noted that poverty amid plenty is the world’s greatest challenge. Poverty makes the people live without fundamental freedoms of action and choices.

More  than  half  of  the citizen’s of the developing countries lived on less than $1.25 a day in 1981 this has however, dropped to 21 percent in 2010.

Yet, about 2.8 billion live on less than $2 a day, and 1.2 billion live on less than $1.25 a day of the total world population of about 7 billion.

According to  World Bank (2010), Sub-Sahara Africa countries have the highest  levels  of  poverty  and income inequality in the past three decades. About 500 million are poor out of its  total population of about 877.6 million.

References

Addison, H. (2007).Empirical Analysis of Poverty and Inequality in West Virginia, April.Retrieved 10th May, 2013 fromhttp://works.bepress.com/cgi /viewcontent .cgi?