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1.1 Background to the 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. Irrespective of the fall in poverty rate of 10 percent between 1999 and 2010, Sub-Sahara Africa is the only region that had a rise in number of poor individuals between 1981 and 2010. There were more than twice as many extremely poor people living in SSA in 2010 (414 million) than there were three decades ago (205 million). As
a result of this, Sub-Sahara Africa accounts for a third of the world’s total poor population in 2010 as compared to the 11 percent of the world’s total poor in 1981 (World Bank, 2010).
In 2006, out of the 50 nations on the UN list of least developed nations, 34 are in Sub-Sahara Africa. A more sobering statistics is that about 14.6 million children (simply, one in every five) live in absolute poverty as at 2007 data. As presented by the Human Development Report (2013) of United Nations Development Programme, human development index for the region was 0.475 in 2012 from 0.366 in 1980 which has been the worst since 1980 as compared to other regions. It has the lowest life expectancy rate of 54.9 and lowest mean years of schooling of 4.7. It also had the highest number of youths as well as the highest number of youth unemployment of 50 percent in 2012 and average youth unemployment of 12 percent over the period. The degree of poverty can depend upon two factors-the average level of income and the extent of inequality in income distribution.
Although growth is seen as the main drivingforce for poverty reduction, interest has nowbeen based on the role of income distribution in reducing poverty since the yield of growth may not be equally shared and poverty not reduced. A distinct conclusion is yet to be established on the relationship between equity and economic growth. The question at hand is whether countries should fight to stimulate economic growth usingmore robust economic incentives that lead to more inequality or strive to reduce inequality, enhance social stability, foster growth and reduce poverty.
From past studies, there are different effects considering rich versus poor countries, regions versus nations and cross section versus time series evidence. Garbis(2005) noted that initial thinking on the impact of inequality on growth is that greater inequality might be beneficial. This means redistribution of income that implies a trade-off of more growth for the price of more inequality. This ambiguouslyaffects the poor people.Inequality may limit growth at the nation level even when the increase in economic motivesadvances growth especially at the lower level, with high mobility of factors. It is a general impression among Economists that poverty seems to be high majorly as a result of the increasing income inequality.It is important that successful development strategies look at their interdependency andinteractions. Hence,Bourguignon (2004) refers to this relationship as the poverty-growth-inequality triangle.
1.2 Statement of the Problem
The policy that would help in the achievement of equity in distribution and alleviation of poverty had been an ongoing debate. Before now, the major debate was the professed trade-off between growth and inequality according to Kuznet’s inverted U-hypothesis that suggested that inequality rises during the initial stages of development and then declines. Question has also been raised on the trickle down of the output of economic growth to the poor as proposed by early theories of development. However studies on different countries have shown that such a pattern cannot always hold for all countries (Deininger and Squire, 1996; Aigbokhan, 2000) and recent emphasis has been on explaining the rationale behind distinct experiences by different countries.
Nigeria’s poverty situation is of a major interest. Statistical data attest to the growing incidence and depth of poverty in the country, and this presents a paradox considering the country’s endowment of vast human and physical resources. The country is rich, but the people are poor (World Bank, 1996a, in Obadan, 1997). Irrespective of the fact that poverty reduction has been at the center ofthe country’s economic policy and development programmes since independence with different targeted program(for instance, National Accelerated Food production Programme, Directorate for Food, Road and Rural Infrastructure (DFRRI), Better Life Programme, National Directorate of Employment, National Poverty Eradication Program (NAPEP), National Economic Empowerment Development Strategies (NEEDS) and Subsidy Reinvestment and Empowerment Programme (SURE-P)), using huge human and material resources and covering different sectors (agriculture, health, education, housing and finance), no noticeable success has been achieved in this direction. The poverty rate is still on the increase given an average of 5 percent per capita growth rate since 2000 (Ichoku,Agu and Ataguba, 2012). However, there are diverse views empirically on the impact of these programmes on the poor and poverty reduction. While some believe it has had positive impact (for example Obadan, 1994; Canagarajah, Ngwafon and Thomas, 1997), others opposed it (examples, Osinubi, 2003; Olaniyan and Bankole 2005; Ichoku et.al,2012).
According to World Development Report (2015), Nigeria was amongst the low-income countries with GDP per capita of $1700 in 2014. Similarly, the HDR (2013) ranks Nigeria 37thin terms of GDP, while onper capita GDP basis, it ranks 143rd. The HDR (2013) ranks Nigeria 30th on the basis of Purchasing Power Parity (PPP $), and 150th on Per Capita Purchasing Power Parity (PPP $). Its human development ranking is equally very low. Human Development Index (HDI) in 2011 puts it at 156th position among 177 countries as compared to
the 151st position in 2002, while its Gender Development Index (GDI) is at the 132ndposition. However, Nigeria ranks 6th and 7th as oil exporter and producer, 10th as the most populous country in the world, 26th largest economy in the world and the largest economy in Africa (World Bank, 2015). According to UNDP HDR (2009, 2010), Nigeria’s human poverty index (HPI) for 2007 was 36 percent placing Nigeria at the 114thposition. Also in 2010, multidimensional poverty index was about 0.310 with about 62percent poor multidimensional while World Bank (2015) rates Nigeria among the 5th poorest nations in the world as at 2014. Inequality is also very high with the ratio of the richest 10 percent to the poorest 10 percent of 16.3 and a Gini index for the nation of 42.9 in 2010 (UNDP, HDR, 2011).
Nwaobi(2004) observed thatNigeria’s challenges are beyond enhancing one sector, State or region and the use of policies that lead to inefficiencies in resource allocation. It requires the adoption of policies that will improve the welfare of all living in it. According to the National Bureau of Statistics (NBS, 2012) and UNDP (2013), an estimated population of about 15 percent of Nigerianlived in poverty in 1960. The incidence of poverty based on $1 a day increased sharply between 1980 and 1985 as well as between 1992 and 1996. However, there was a decrease in poverty level between 1985 and 1992, see figure 1.
Figure 1.1: Poverty-growth-inequality trends
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