POVERTY ODDS AND HOUSEHOLD EXPENDITURE PATTERNS IN NIGERIA

Abstract

The determination of household expenditure and estimates are fundamental in identifying consumption patterns of the poor. It has been proven that the identification of the poor, accounts for the poverty incidence in a society. Poverty and household expenditure patterns are like the two sides of a coin, where poverty is a state of lacks and denial and household expenditure patterns are the mirrors of the households’ welfare. This study examined the poverty incidence in Nigeria and investigated the effects of some household expenditure patterns on the odds ratio of poverty majorly. The Harmonized National Living Standard survey (NHLSS 2009) was used in this study while descriptive statistics, graphs and ordinary logit model were adopted in the analysis. The empirical evidence from this study showed that about 52.25 percent of Nigeria’s populations are poor. Expenditure patterns of the households decomposed by their socio-economic characteristics: poverty status(poor and non poor), sex(male and female) and sector(rural and urban) revealed that the rural resident households spend more on food while the urban residents spend more on health. The expenditure of the poor is skewed to food consumption while that of the non poor is spread across other expenditure patterns. Likewise, female-headed households spend more on health while the male-headed households spend more on food. Health and food expenditures are the significant expenditures patterns with other poverty indictors like sector and household size in the model. Considering “sector” (urban and rural) in the study, the rural household residents increase, in turn, increases the log of the odds ratio of poverty more, relative to the urban resident households. Findings showed that urban households spend more on health while the rural households spend more on food. This suggested that poverty is prevalent in the rural sector. Household size correlate with the log odds ratio of poverty implied that the log of the odds ratio of poverty increases as household size increase. Health insurance scheme, education subsidy, pension scheme women empowerment and family planning advocacy were recommended.

TABLE OF CONTENTS

Title Page             –           –           –           –           –           –           –           i          

Approval Page-     –          –           –           –           –           –           –           ii

Certification-      –           –           –           –           –           –           –           iii

Dedication-   –           –           –           –           –           –           –           iv

Acknowledgement-  –          –           –           –           –           –           –           v

Abstract-      –           –           –           –           –           –           –           –           vi

Table of Contents-   –                 –           –           –           –           –           vii

CHAPTER ONE: INTRODUCTION–    –   –           –           –           –           1

1. Background of the Study-          –           –           –           –           –           1
2. Statement of Problem-            –           –           –           –           –           5

1.3 Research Questions –        –           –           –           –           –           –           8

1.4 Objective of the Study-             –           –           –           –           –           –           9

1.5 Hypothesis of the Study-              –           –           –           –           –           9

1.6 Significance of the Study-          –           –           –           –           –           10

1.7 Scope of the Study-       –           –           –           –           –           –           11

CHAPTER TWO: LITERATURE REVIEW–   –           –           –           –           13

2.1 Conceptual Framework-           –           –           –           –           –           13

2.1.1 Poverty Incidence-    –           –           –           –           –           –           13

2.1.2 Household Expenditure Patterns-         –           –           –           –           14

2.2 Theoretical Literature            –           –           –           –           –           18

2.3 Empirical Literature         –     –           –           –           –           –           22       

2.4 Limitations of Previous Studies–           –           –           –           –           36

CHAPTER THREE: METHODOLOGY –   –           –           –           –           –           37

3.1    Method of Analysis           –           –           –            –          –                   37

3.1.1 Binary Model: Logistic Regression. —       –           –           –           37

3.1.2 Logit Model Overview-         –              –           –           –           –           39

3.1.3. Justification of Logit  Model :           —            –            –      39

3.1.4 Foster Greer-Thorbecke Index Justification               –           –           40

3.1.5 Logit Model Statistics and Implications         –           –           –           41

3.2   Model Specification-   –           –           –           –           –           –           46

3.3   Data source and method of collection. –  –           –           –           47

CHAPTER FOUR

 4.0 ANALYSIS, RESULT PRESENTATION AND INTERPRETATION   48

4.1 Analysis Procedure-         –           –           –           –           –           –           48

4.2 Graphical Result Presentation.             –           –           –           –           –           49

4.3 FGT Statistics and Implications-           –           –           –           –           54

4.4 Result Presentation and Interpretations-              –           –           –           55

4.5  Hypothesis Testing-       –           –           –           –           –           –           60

4.6  Procedure of Hypothesis Testing: –   –     –           –           –           –           61

4.7 Likelihood Ratio Test-           –              –  –           –           –           63

4.8 Likelihood Ratio Hypothesis –     –              –  –           –           –           63

4.9 Model Fitting-    –          –           –           –           –           –           –           64

CHAPTER FIVE: SUMMARY, POLICY IMPLICATION AND CONCLUSION

5.1 Summary-        –          –           –           –           –           –           –           65

5.2 Policy Implications-          –              –  –           –           –           66

5.3 Recommendations                          –              –                                71

5.4 Conclusion– – –     –         –          –           –            –             –        –        –  71

REFERENCES–       –           –           –           –           –           –           –           72

CHAPTER ONE

INTRODUCTION

Background of the Study

Poverty odds and households’ expenditure patterns are like the two sides of a coin, where poverty is a state of lacks, deprivations and denial while household expenditure patterns are the mirrors of the households’ poverty status.

Poverty commonly refers to the lack of basic human needs faced by certain people in the society. African nation typically falls toward the bottom of any list measuring small size economic activity, such as income per capita or GDP per capita despite a wealth of natural resources. Nigeria is classified as a middle income country, practicing mixed economy and an emerging market in the world, with expanding financial service, communication and entertainment sector. Human capital is an important factor for the wealth of a nation due to its influence on the overall production of the country. The Human Development Index (HDI) provides a measure for human capital development in dimensions: education, shelter and health. These dimensions involve emerging poverty indicators measures of poverty. The recent value of HDI reveals that Nigeria is ranked 156 with the value of 0.459 among 187 countries. The HDI value places Nigeria in the rare, implying that Nigeria is considered to have low level of human development. Nigeria is also ranked 151 out of countries in the United Nation’s Development index, (UNDP 2004).  It can be observed from statistics that Nigeria’s human capital is underdeveloped and this in turn reflects poverty in Nigeria.  

Poverty is conceptualized in many dimensions, concepts and approaches such as (absolute poverty, Relative poverty, non-income dimensional poverty etc). Poverty in absolute term refers to the deprivation of basic human needs, which commonly include food, water, sanitation, clothing, shelter, health care and education assess. An absolute line in poverty concept is fixed in terms of living standards indicator being used and fixed over the entire domain of the poverty comparison (Ravallion 1992). Absolute poverty line defined in Appleton (2001) was obtained after applying the Ravallion and Bidani (1994) method to data from the first monitoring survey of 1993. Relative poverty is defined contextually as economic inequality in the location or society in which people live. The poverty trend estimate focused on the cost of meeting caloric needs and some allowance for non food needs measured in absolute terms.

The characteristics of poverty incidence encompasses the following:(hunger, lack of health care, lack of education, lack of housing and utilities, violence, low household expenditure capacities and others).These characteristics are used to classify poverty into poverty Incidence, Depth of poverty (poverty gap) and poverty severity (squared poverty gap).Incidence of poverty in this context is the share of the population that cannot afford to buy a basket of goods. Depth of poverty provides the information regarding how far off households are from the poverty line. This measure captures the mean aggregate income or consumption short fall relative to the poverty line across the whole population. Poverty severity takes account not only the distance separating the poor from the poverty line (the poverty gap) but also the inequality among the poor. This implies that, a higher weight is placed on those household who are further away from the poverty line. Household expenditure or income is often adopted in the case of poverty line determination. The Nigeria food poverty line is N39, 759.49 naira, the absolute poverty line is N54, 401.16 with food and non food inclusive and relative poverty line is N66, 802.20 naira. These monetary lines separate the poor from the non-poor. The individual whose per capita expenditure is less than the poverty line as above are considered to be poor while those above the poverty line are considered to be non poor.

Per capita expenditure in poverty concept support that determination of expenditure and estimates of household is fundamental in identifying the consumption patter of the poor as stated by (National Bureau of Statistics: Nigeria Poverty profile 2012).An Engel curve describes how household expenditure on a particular goods or services varies with households’ income. The consumption function relates the consumption expenditure decision of household. Household final consumption expenditure (HFCE) is a transaction of the national account use of income account, representing consumer spending. It consists of the expenditure incurred by households on the consumption of goods and service, including those sold at prices that are not economically significant. Household final consumption expenditure (HFCE) is not exhaustive measure of the goods and services consumed by household. This is because there are other consumptions that may not be accounted by available statistics. The expenditure aggregates compute all individual households’ expenditures into their primary headings such as expenditure on food, non food, rents, health, education etc for the purpose of poverty profile. It also includes some non monetary measures such as consumption from own produce, uses value of owned assets and inputted owner occupied rents.

Poverty incidence in Nigeria showed that poverty level declined from 46.3 percent in 1985 to 42.7 percent in 1992, it sharply rose to 65.8 percent of the population in 1996. Nigeria poverty incidence is currently estimated to be 112.47 million in 2010; this represent 69.0 percent of Nigeria Population that are living in poverty out of the 140 million people based on the 2006 National population census and 163 million based on National population Commission’s estimate. The population of Nigerians living below national poverty line in the year 2004 and 2007 respectively are 54.7 percent and 70 percent (World Bank 2004; CIA 2007 & National Bureau of Statistics 1996; 2012). 

Nigeria’s economy is struggling to leverage the country’s vast wealth in fossil fuel in order to displace the poverty that affects her population. From 2003 to 2007, Nigerian government attempted to implement an economic reform program called the National Economic Empowerment Development Strategy (NEEDs).The purpose of the NEEDs was to raise the country’s standard of living (poverty targeting) through a variety of reforms. The NEEDs thrust addressed basic deficiencies such as the lack of freshwater for household use and irrigation, unreliable power supplies, decaying infrastructure, impediment to private enterprise and corruption. All these basic deficiencies are the manifestation of poverty.

Statement of Problem