Decomposition Analysis of Inequalities in Household Consumption Expenditure in Nigeria.


Income inequality is one of the major underdevelopment problems facing developing countries including Nigeria.

Despite serious attention given to inequality in both theoretical and empirical literature, it is still understudied in the case of Nigeria because most empirical studies overaggregate analysis.

This study departs from existing studies in two ways. First, the study disaggregates household consumption expenditure into food and nonfood and thus decomposes inequality into within-groups and between-groups components using generalised Entropy (GE) measures.

The purpose is to ascertain where inequality in household consumption expenditure is coming from.

Second, the study employs regression-based inequality decomposition to ascertain the determinants of inequality in food and nonfood expenditure using household demographic and socioeconomic characteristics as covariates.

The data used in the analyses is the 2010 Harmonised Household Living Standards Survey for Nigeria.

The results show that nonfood expenditure is the major source of inequality in household consumption expenditure in both urban and rural areas with inequality coefficients of above 0.6 compared to about 0.4 for food expenditure.

The decompositions also show that within-group inequalities for nonfood and food expenditure are respectively 0.97 and 0.365 using the Theil index, while between-group inequalities for nonfood and food are respectively 0.016 and 0.035.

Table Of Contents

Title Page                                         i

Certification                                    ii

Approval Page                              iii

Dedication                                       iv

Acknowledgements                       v

Table of Contents                    vi

List of Figures                     viii

List of Tables                        ix

Abstract                                  x


  • Background of the Study 1
  • Statement of the Problem 3
  • Research Questions 5
  • Objectives of the Study 5
  • Research Hypothesis 6
  • Significance of the Study 6
  • Scope of the Study 7


  • Conceptual Framework 8
  • Theoretical Literature 10
    • Introduction 10
    • Social Segregation Theory 10
    • Political Theory 11
    • Globalization Theory 11
    • Human Capital Theory 12
  • Empirical Literature 13
    • Studies from other Countries 13
    • Studies on Nigeria 26
  • Limitations of Previous Studies and Motivations 36


  • Theoretical Framework 38
  • Model Specification 40
    • Nonparametric Specifications 40
    • Decomposition of Income Inequality: Regression Based Inequality 41
  • Justification of the Approach 44
  • Identifying the Unit of Analysis 45
  • Determining the Measure of Welfare 45
  • Data Description 45


  • Non parametric Result 47
  • Determinants of Inequality of food and Nonfood Expenditure 51


  • Summary of Findings 55
  • Policy Recommendations 56
  • Conclusion 57

References                          58

Appendix                             67


Background of Study

Household consumption expenditure is one of the important components of gross domestic product (GDP). On the average, consumption expenditure accounts for over 60 percent of the gross domestic product in all countries.

When developing countries are singled out, consumption expenditure could account for as high as 68 perccent to 70 percent of the GDP (Yakubu and Abbas, 2012).

Consumption expenditure is defined as the market prices of all goods and services purchased by households to satisfy their needs and wants. It includes all foodand non-food expenditure.

For a typical developing country such as Nigeria, households spend more than 60 percent on food items and about 40 percent on non-food items (which include education expenditure and medical expenditure) (Yakubu and Abbas, 2012).

Research by International Fund for Agricultural Development (IFAD) showed that inequality in household consumption expenditure is widespread and rising in both urban and rural areas in Nigeria(IFAD, 2007).

Similarly, a report published by the National Bureau of Statistics (NBS) in 2012, revealed that inequality in household consumption expenditure varies greatly in the six geo-political zones of Nigeria.


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Adigun, G. T., Awoyemi, T. T., & Omonona, B. T. (2011). Estimating economic growth and inequality elasticities of poverty in rural Nigeria. International Journal of Agricultural Economics and Rural Development, 4 (1), 25-35.

Agwu, A. E., Ellah, J., & Iwuchukwu, J. C. (2009). Consumption patterns and intra-household roles in the production, processing and marketing of soyabeans in the Northern agricultural zone of Benue State, Nigeria. African Journal of Biotechnology, 8 (4), 605- 613.

Akekere, J. Y., & Yousuo, P. O. (2012). Empirical analysis of change in income on private consumption expenditure in Nigeria from 1981-2010. International Journal of Academic Research in Business and Social Sciences, 2, 188-197

Akinlo, A. E. (2009). Electricity consumption and economic growth in Nigeria: Evidence from co-integration and co-feature analysis. Journal of Policy Modeling, 31 (5), 681-693.

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