CHAPTER ONE

INTRODUCTION

1.1. Background of the 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).

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.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. The report further showed that these variations are greatly influenced by the heterogeneity of zones in terms of prices, income, population, tastes and cultural factors.Bamidele, Abayomi, and Esther (2010) argue that demand pressure in different geo-political zones also helps to explain inequality differential. Figure 1 shows the average consumption expenditure in percentage terms for the six geo-political zones in Nigeria.

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Source: NBS, 2012

Fig 1: Food and Non-food expenditure among Nigerian Geo-political Zones

The chart shows that household consumption expenditure for south-west zone has the highestproportion (29 percent) for non-food items, while the North-West zone has the highest (25 percent) for food items. The South-South and South-West zones consume more of non-food items while the rest of the zones have high dependence on food items. In general, South-South and South-West zones spend more of their income on non-food than food items, while the North-Central, North-East, North-West and South-East spend more on food than non-food items.

Awoniyi, Amos, and Omole (2011) also established that inequality in household consumption expenditure profile exists among the six zones in Nigeria. They showed that the mean index inequality in household consumption expenditure among zones in Nigeria is 0.4093.The highest is in the North-West zone with an index of 0.4305. Then the least is in the South-South zone with an index of 0.2233. Therefore, about 40 percent inequality in household consumption expenditure in Nigerian households is evident. This is even higher in the North-West zone with 43 percent inequality, and least in the South-South zone with approximately 22 percent inequality.

Often, this inequality in household consumption expenditure has been traced to the level of educational attainment since this characteristics of household heads has a way of improving living standard of individuals and households (Olaniyan and Awoyemi, 2006). However, considering the economic implication of income inequality and low per capita income indeveloping countries, the poverty consequences of changes in income distribution are likely to be significant (Fofack and Zeufak, 1999).This implies that if householdconsumption

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expenditures are more on capital investments, it will go a long way to boost output. The outputs will createemployment as well as boost economic activities that might stimulate investments such that the effect can reduce the widespread of inequality in household consumption expenditure.

However, Nigeria, as a typical developing country, exhibits several characteristics of other developing countries one of which is large household size. Other characteristics include: low wages, low employment rate, high dependency ratio, prevalence of subsistent agriculture, and high dependence on food consumption (FAO, 2013). This has reflected greater deprivation among different strata of consumers, which also accounts for the existing inequality in consumption expenditures among Nigerian households (Adekunle, Adegbite, & Fakayode, 2012). The focus of this study is to provide further evidence on inequality in Nigeria.

1.2. Statement of the Problem

High income inequality is one of the critical problems of development especially in developing countries such as Nigeria with high level of poverty and fluctuating economic growth. High inequality reduces the ability of economic growth to trickle down to substantial reduction in poverty (Bourguignon, 1979). Inequality appears to be widening in Nigeria over the past one and half decades following the rise of the political clas