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Inequality in the distribution of household expenditure in rural Nigeria:
A decomposition analysis

Olanrewaju Olaniyan, Timothy. T. Awoyemi

October 2005

SARPN acknowledges the African Economic Research Consortium (AERC) as the source of this document:
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Problem statement

The Nigerian problem in the 20th century has been the inability to get the best from her human resources. The problem goes beyond low income, savings and growth. It includes high inequality, which includes among others, unequal access to basic infrastructure and unequal capabilities (education and health status). There have been numerous studies on poverty in Nigeria, but few on inequality. Incidentally, the importance of unequal access to opportunities, assets, income and expenditure cannot be overemphasised as it plays important roles in reducing poverty and spurring the economy to long-term development. In Nigeria the poor are not just the rich with less money, but are the poorest of the poor. Households are not only poor; they also suffer from vast inequality in incomes, in assets (including education and health status), in control over public resources, and in access to essential services as well as pervasive insecurity (World Bank, 2000). The distributional consequences of economic growth is therefore one of the main policy issues in Nigeria.

Inequality in income distribution has been a subject of controversy in the literature with the Kuznet hypothesis being the focal point. The hypothesis has suggested that as development proceeds, inequality will increase at the very early stages and then decline. However, there has been no consensus on whether a Kuznet curve exists for Africa (Fields, 2000). Although economic growth is important for the success of any economy, it becomes less effective for poverty in the face of massive inequality. Given the depth of inequality in Nigeria, growth may not be enough without giving attention to easing inequality and eliminating barriers that constrain poor people to benefit from a growing economy and to contribute to that growth (Iwayemi et al, 2000). Unless distributional elements are included in developmental programmes and reforms, it will be difficult to solve human development crisis, which might also deter the development of the economy. Rather it has been pointed out that in high inequality countries, up-front actions that are both growth promoting and equity enhancing may be the only realistic option for development to be sustained (Estudilo, 1997).

Nigeria has experienced a high incidence of poverty over the last two decades. The impact of the incidence becomes more important because of the high inequality associated with even this low level of household income and expenditure. The variations are not just among households but also among different regions of the country (Aigbokhan, 2000).

This study thus attempts to provide an update on household expenditure inequality among different regions in Nigeria and then investigates its factors and forces by decomposing the inequality into within-group and between group components so as to help identify policy directions for the future. Several factors have been identified as having affected income and expenditure inequality in Nigeria. They include the level of education, age distribution of household heads, gender, household size and location (geopolitical zones). All inequality measures reported in this study refers to household per capita expenditure data. The study also presents a decomposition analysis of the overall income inequality into both within-group and between-group components.

The exploration of these factors is expected to raise some policy issues and give policy directions to policymakers especially concerning the identification of the target groups that will enhance more equitable distribution of income among Nigerian households. This will not only reduce inequality but also help the poorest of the poor to contribute to and benefit from the growth and development process.

The paper proceeds as follows. In the next chapter, we present a literature review followed by the methodology in chapter Three. Chapter Four presents the Analysis of the Results while Chapter Five concludes.

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