Project Abstract

Project Overview

<p>1<b>.0 INTRODUCTION&nbsp;</b></p><p><b>1.1 BACKGROUND OF THE STUDY</b></p><p>The recent years have witnessed an increasingly strong interest in the impact of economic growth on poverty. An important reason for this has been the establishment of the so called Millennium Development Goals, which have set poverty reduction as a fundamental objective of development (Duclos and Verdier-Chouchane, 2010). According to the authors, in the literature on the linkages between growth, poverty and inequality, there is often a tension between macro and microanalysis. Shorrocks and van der Hoeven( 2004) were of the view that although a search for general conclusions may seem natural at a macro level, it is important that a careful micro work is needed to deal adequately with poverty issues. The World Bank and IMF have begun to stress that a central way of reducing poverty is to boost GDP growth and in particular, they strive to achieve ―pro-poor‖ Gross Domestic Product (GDP) growth. The Organization for Economic Co-operation and Development (OECD) (2001) defined Pro-poor growth as growth that leads to significant reductions in poverty. Whether GDP growth will automatically reduce poverty depends on its relationship with inequality (Miles and Scott, 2005). The authors states that if the benefits of GDP growth accrue only to the rich, then GDP growth will boost inequality but leave poverty unaffected. It may even be possible that GDP growth in a modern sector of the economy leads to declines in traditional sectors where the poor are mainly based. In this case, GDP growth produces widening inequality and higher levels of poverty immiserizing growth. Ijaiya, Ijaiya, Bello and Ajayi(2011) stated that growth in the economy of any nation is a clear indication of an improvement in the socioeconomic well-being of its people. The African Development Bank (AfDB) (2008) report indicated that a deterioration in the growth rate as shown in most developing countries is thus a manifestation of the fall in the standard of living of the people that cumulates into poverty. 4 According to Aho, Lariviére and Martin (1998) ―The concept of poverty has evolved in the history of economic thoughts, witnessing different stages of transition since the 18th century‖. The second transition in the evolution of the concept of poverty began at the end of the colonial period with new awareness of the problem of poverty as it afflicts developing countries. The post-colonial period has been characterized by a deliberate transfer from the North to the South of the anti- poverty polices development in Europe during the nineteenth and twentieth centuries. Poverty has been traditionally understood to mean a lack of access to resources, productive assets and income resulting in a state of material deprivation (Baulch, 1996). Progress on poverty reduction has become a major measure of success of development policy. In the 1970s and 1980s, the pre-occupation was with growth, the need to grow the economies and incomes. Growth was seen as a prerequisite for improved welfare. Many developing countries in the 1980s implemented Structural Adjustment Programmes (SAP) aimed at enhancing growth. Following these programmes, many countries recorded positive real growth rates. The development literature in the 1990s was dominated by the view that growth is central to any strategy aimed at poverty reduction. Countries that made noticeable progress on poverty reduction were those which recorded fast and high growth rates (World Bank, 2000). According to Miles and Scott (2005), ―The World Bank measures poverty as the number of people living on less than $1 a day (using PPP exchange rates) and an alternative measure of less than $2 a day‖. The authors were of the view that by any standards, these are extremely low levels of income (not enough to provide clean water, sanitation, and adequate food, let alone health and education). The World Bank (2003) report noted that in 1998 more than 2.8 billion people were living on less than $2 a day and nearly 1.2 billion on less than $1 a day. Even worse, the number of people living in poverty has increased over time. Reducing world poverty is a major policy aim, summarized in the United Nation‘s Millenium Development Goals, which aim to reduce by half the proportion of people living on less than $1 a day. This involves reducing poverty from 29% to 14.5% of world population and reducing the number of poor people from 1.2 billion to 890 million by 2015 (Miles and Scott, 2005). <br></p><p> <b>1.2 STATEMENT OF THE PROBLEM</b></p><p>Many Economists would argue that igniting economic growth and sustaining it is the surest and most sustainable way to fight poverty. Cross-country studies on economic growth and poverty reduction indicate that a 1% increase in growth has been associated on average with a 1.5% reduction in poverty (Hasan, Mitra and Ulubasoglu, 2007). The Asian Development Bank (ADB) (2004) report stated that there is a great deal of variation in how much economic growth has reduced poverty across countries and even within countries over different periods of time. In statistical terms, the report noted that variation in economic growth can explain only around 45% of the variation in poverty 7 reduction. These two ―stylized facts‖ about growth and poverty linkages - that poverty reduction is closely associated with economic growth but that this association is by no means perfect suggests two challenges for policymaker (Hasan et. al., 2007). According to author, first what are the policies that can ignite and thereafter sustain growth? Second, how does one ensure that growth generates significant opportunities for the poor? To date, poverty situation in Nigeria remains a paradox, at least from two perspectives.&nbsp;</p><p>Firstly, poverty in Nigeria is a paradox because the poverty level appears as a contradiction considering the country‘s immense wealth. Secondly, poverty situation has worsened despite the huge human and material resources that have been devoted to poverty reduction by successive governments in Nigeria with no substantial success achieved from such efforts (Oyeranti and Olayiwola, 2005). According to the authors, since poverty remains a development issue, it has continued to capture the attention of both national governments and international development agencies for several decades. Since the mid 1980s, reducing poverty has become a major policy concern for governments and donor agencies in all poverty stricken countries, Nigeria inclusive. Thus, to attain the objective of reducing poverty in Nigeria, the preoccupation of the government has been the growth of the economy as a pre-requisite for improved welfare. To this effect the government therefore initiated several economic reform measures which include Economic Stabilization measures of 1982, Economic Emergency Measures in 1985 and Structural Adjustment Programme (SAP) in 1986. Components of SAP include market- determined exchange and interest rates, liberalized financial sector, trade liberalization, commercialization and privatization of a number of enterprises (Aigbokhan, 2008). <br></p><p> Specialized agencies were also established to promote the objective of poverty reduction. These include Agricultural Development Programmes, Nigeria Agricultural, Cooperative and Rural Development Bank, National Agricultural Insurance Scheme, National Directorate of Employment, National Primary Health Care Agency, Peoples Bank, Urban Mass Transit, mass education through Universal Basic, Education (UBE), Rural Electrification Schemes (RES) among others (Adigun, Awoyemi and Omonona, 2011). The recent effort is based on the seven point agenda. Like earlier reform packages, the strategy considers economic growth as crucial to poverty reduction. The major issues of the seven point agenda include: power and energy, food security, wealth creation and transportation. Others are land reforms, security and mass education. There may have been increased polarization in income distribution, resulting in a wider gulf between the poor and the rich, manifested in a disappearing middle class in the Nigerian economy. Despite policy interventions in the past to correct this abnormality, income inequality has increased the dimension of poverty (Oyekale, 2007). Additionally, attention to the importance of income distribution in poverty reduction seems to be growing. Whether growth reduces poverty, and whether in particular, growth can be deemed to be ―pro-poor‖, depends, however, on the impact of growth on inequality and on how much this impact on inequality feeds into poverty (Araar and Duclos, 2007). The rate of rising poverty in Nigeria has led to a number of empirical researches to understand the link between economic growth and poverty reduction. These research works (for example Adigun ,et al.2011, Akanbi and Du Toit, 2009; Orebiyi, 2008 and Osunubi, 2006) however, are one sided in the sense that they particularly focused on how various government policies affect poverty reduction and not if the growth performance are pro-poor. The argument in the theoretical literature on whether a country should focus on achieving growth and thereafter ensure that the pattern of its growth is pro-poor or focus on reducing poverty by ensuring that this will lead to growth is still unclear and therefore requires further empirical works especially for the case of Nigeria. This study is therefore designed to fill these gaps by attempting to address the following research questions: why has the rate of poverty been so high in Nigeria despite record increase in economic growth? What is the nature of relationship between poverty and Economic growth in Nigeria? If recorded economic growth cannot be translated into improved living condition of the poor, what other measures of policy can be explored to reduce poverty and how? <br></p><p> <b></b>1.3 OBJECTIVES OF STUDY<b></b></p><p>The main objective of this study is to explore the linkages between economic growth and poverty reduction in Nigeria. The specific objectives are: i To ascertain if recorded economic growth in Nigeria translated into poverty reduction ii To assess if growth is pro-poor in Nigeria. <br></p><p> <b>1.4&nbsp; RESEARCH HYPOTHESES</b></p><p>Based on the objectives outlined above, the following hypotheses therefore were formulated for this study:</p><p>&nbsp;Ho1 Recorded economic growth does not translate into poverty reduction in Nigeria&nbsp;</p><p>Ho2 Growth in Nigeria is not pro-poor&nbsp;</p><p><b>1.5 SCOPE OF THE STUDY</b></p><p>&nbsp;This study is limited to the Nigeria economy for the period 2004-2008, it uses Nigerian households‘ survey for two periods 2003/2004 and 2008 to make an ex-post analysis of changes in poverty. <br></p>