Poverty and the Nigerian Economy
Chapter One
OBJECTIVES OF THE STUDY
The objectives of the study are to evaluate the performances of the Nigerian economy. Specifically the study tends to examine
- How the Nigerian economy had fared in the poverty trend
- The effect of poverty on output.
CHAPTER TWO
LITERATURE REVIEW
Theoretical literature
The OECD (2001) report noted that simple theory and empirical evidence indicate that poverty reduction can be achieved by accelerating economic growth or by changing the distribution of income in favor of the poor. The report further stated that sustained economic growth reduces poverty. This is not to say, however, that average income growth increases the incomes of the poor in every growth episode in every country. Pro- poor growth has been broadly defined by a number of international organizations as growth that leads to significant reductions in poverty (OECD, 2001).
Linkage between Economic Growth, and Poverty Reduction
Page (2005) argued that an important strand of the literature on growth and poverty reduction side steps the definitional debate. The author noted that it argues that because on average, growth benefits the poor to the same extent it benefits the non-poor, the distinction between growth and pro-poor growth as a public policy objective is not practically relevant. Policies designed to maximize the rate of growth in low income countries are likely also to be those that maximize the growth of income of the poor. Page (2005) stated that it is difficult to argue that sustained poverty reduction can be achieved alongside economic stagnation or decline, the debate over pro-growth versus pro-poor strategies, hinges on the extent to which the average relationship between growth and income distribution conceals important variations that may, ultimately be addressed by public policy.
Islam (2004) stated that analysis of the relationship between economic growth and poverty reduction has gone through various phases in the literature on development. For example, an important premise of the very early theories of development was that the benefits of economic growth would trickle down to the poor. Since then, questions have been raised on the assumption of an automatic link between growth and poverty reduction, and attempts have been made to understand the mechanisms through which the benefits of growth may get transmitted to the poor. Islam (2004) noted that following on the Kuznets (1955) hypothesis of an inverted U shape of the relationship between economic growth and income inequality, Adelman and Morris (1973) was one of the earlier studies to question the automaticity of the relationship between economic growth and benefits to the poor. And then the influential contribution by Chenery, Ahluwalia, Bell, Dulloy and Jolly. (1974), focusing on the importance of redistribution alongside economic growth.
Economic growth, however, came back to fashion once there were studies casting doubt on the suggestion that higher growth could be associated with increased poverty, and re- asserting that growth, almost always, reduced poverty (Fields, 1980).The decade of the 1980s witnessed renewed emphasis (especially on the part of the international development partners) on economic growth; but studies on growth contributing to poverty reduction again came in good numbers during recent years (Dollar and Kray, 2000). While growth continued to occupy the centre stage in development literature, there have been studies, especially in recent years, arguing that although growth is necessary for poverty reduction, it is not sufficient (Islam, 2004). The author explains that some studies point out that the pattern of growth is important from the point of view of its effectiveness in reducing poverty.
Pro-poor growth theory
Akanbi and Du toit (2009) stated that the last few decades have experienced resurgence in both the growth theory (development of the endogenous growth models) and the pro- poor growth models in the macroeconomic literature. According to Domar (1957) ―The framework of neoclassical economics can be viewed as a summation of the various contributions of authors to the model of long-run economic growth‖. The Author noted that Solow (1956) made a huge contribution to the growth theory in which he has been revered as the pioneer of neoclassical growth model. The implications of the neoclassical growth model can be viewed on a short and long-run analysis. In the short-run, policy measures like the tax cuts will affect the steady-state level of output but not the long-run growth rate. Instead, growth will be affected as the economy converges to the new steady-state level of output which is determined mainly by the rate of capital accumulation. This is in turn determined by the proportion of output that is not consumed but is used to create more capital (Savings rate) and also the rate at which the level of capital stock depreciate. This implies that the long-run growth rate will be exogenously determined and the economy can be predicted to converge towards a steady-state growth rate which depends on the rate of technological progress and labour force growth. Therefore, a country will grow faster if it has a higher savings rate (Akanbi and Du toit, 2009).
CHAPTER THREE
METHODOLOGY
Research method
This section specifically deals with the methodology of the study attention has been focused on source of data, model formulation and method of data analysis. The data used in this study were mainly secondary data. They covered the period of 30 years and obtained from CBN statistical bulletin (2010 and 2011) and economic journals. Others were obtained from textbooks and websites.
Model Specification
Sequel to the theoretical framework, the study examined the impact of economic growth on poverty reduction in Nigeria. The model was modified to include Economic Growth- proxied by GDP growth rate as dependent variable. Poverty, unemployment, population, mortality rate, life expectancy rate, corruption, consumption, per capita income and illiteracy rate were included as the explanatory variables. Thus, the model for the study is specified as:
The functional form of the model is:
GDPGR = (POVT, UNEMP, POPL, MORT,LER,CORP, CNSUM, PCI, IILLTR)………….(1)
The mathematical form of the model is:
GDPGR =β0+β1 POVT+β2 UNEMP+β3 POPL+β4 MORT+β5 LER+β6 CORP +β7 CNSUM+β8 PCI+β9 IILLTR+β10……….(2)
The econometric form of the model is:
GDPGR =β0+β1 POVT+β2 UNEMP+β3 POPL+β4 MORT+β5 LER+β6 CORP +β7 CNSUM+β8 PCI+β9 IILLTR+β10+µi………………..(3)
Where
CHAPTER FOUR
PRESENTATION OF RESULT
The result of the regression test is presented in the table 1 below.
Dependent Variable: GDP
Sample: 1980 2017
Included observations: 38
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
The study attempted to examine the impact of economic growth on poverty reduction in Nigeria. Specifically, the study intends to determine the effect and relationship between selected macroeconomic variables (poverty, unemployment, population, mortality rate, life expectancy rate, corruption, consumption, per capita income, illiteracy rate) and Gross Domestic Product (GDP) in Nigeria using secondary time series data collected from Central Bank of Nigeria (CBN) statistical bulletin from 1980-2017. From the study the coefficient of determination (R2) is given as 0.704552, which shows that the explanatory power of the variables is high. This implies that 70.4% of the variations in the growth of GDPGR are being accounted for or explained by the variations in POVT, UNEMP, POPL, MORT, LER, CORP, CNSUM, PCI, and IILLTR. Also, the standard errors show that all the explanatory variables were all low. The low values of the standard errors in the result show that some level of confidence can be placed on the estimates. Again, from our analysis so far, this study discovered that the F-statistic conducted was found that there is significant impact between the dependent and independent variables in the model. It is also observed that all the variables except unemployment, consumption and illiteracy rate do conform to the theoretical or a priori expectation of the study. Whereas it is observed that population, life expectancy and per capita income have a positive relationship with GDP. This means that when population, life expectancy and per capita income are increasing, the increases will bring about more growth in the GDP. On the other hand, poverty rate, mortality rate and corruption were observed to have a negative sign which means that if poverty rate, mortality rate and corruption are falling, there will be increase in GDP.
Based on the findings of this study, the following recommendations are made:
- Nigeria poverty reduction programmes should be designed to be measurable and realistic. By targeting the felt need and occupational engagement of the people.
- Supervised capacity building before and after the implementation of the programmes is imperative. This will help address the challenge of unemployment occasioned by failures of businesses supported by the government.
- The leadership should cultivate a decisive spirit of patriotism and nationalism which will reinforces itself in high level trust, mutual coexistence, stability and development that will permit accountability, transparency and openness which in the long run would help increase economic growth and reduce poverty.
- Continued investment in human capital as in use of ICT to educate the poor, can boost the living standards of households by expanding opportunities, raising productivity, attracting capital investment, and increasing earning power.
- Also, holistic effort should be made by governments to improve basic human welfare in both health and social infrastructure that will eventually reduce the high rate of child mortality as well as improve standard of living.
References
- Abdulraheem, A. (2011). Sectoral contribution to gross domestic product in nigeria: 1977-2005. Nigerian institute of international affairs. Marina: Lagos.
- Adigun, G. T. T. T. A. and Omonona, B. T. (2011). Estimating economic growth and inequality elasticities of poverty in rural Nigeria. International Journal of Agric Economics and Rural Development, 4(1): 25-35.
- Aiyedogbon, J. O. and Ohwofasa, B. O. (2012). Poverty and youth unemployment in Nigeria. International Journal of Business and Social Science, 3(20): 269-79.
- Atoloye, A. S. F., 1997. “Strategy for growth-led poverty alleviation in Nigeria.” In proceedings of the nigeria economic society annual conference on poverty alleviation in Nigeria Ibadan: NES. pp. 569-85.
- Central Bank of Nigeria (CBN) (2010). Annual reports and statement of account. CBN: Lagos.
- Diao, X., Nwafor, M., Alpuerto, V., Akramov, K. and Salau, S. (2010). Agricultural growth and investment options for poverty reduction in nigeria. International Food Policy Research Institute:
