IMPACT OF MACROECONOMIC SHOCKS ON HOUSEHOLD POVERTY AND INCOME INEQUALITY IN NIGERIA

Abstract

Poverty and income inequality are huge development challenges in Nigeria. Over half of the population are living below the poverty line, which is further accentuated by highly skewed incomes. While it is widely held that the poor are more vulnerable to economic shocks, empirical information regarding the degree to which these shocks affect them is desired to ameliorate the problem. Hence, the impact of some macroeconomic shocks on poverty and income inequality in Nigeria was investigated. The National Living Standards Survey (NLSS) data of 2004 by the National Bureau of Statistics and Nigeria�s 2006 Social Accounting Matrix (SAM) by the International Food Policy Research Institute (IFPRI) were used. The NLSS employed a two-stage cluster sampling technique. The 19,158 housing units reported at the end of the survey were used in the analysis. The NLSS provided data on households� income and expenditure whereas the SAM provided data on production, income, consumption and capital accumulation. The modified IFPRI SAM used comprised 21 matrix accounts; made up of four activity sectors (food, other agriculture, crude oil and manufacturing/services) and four different household groupings (rural-south, rural-north, urban-south and urban-north). Data were analysed using Foster-Greer-Thorbecke poverty measures and Gini-index, computable general equilibrium technique, and sensitivity of poverty and inequality to macroeconomic shocks (fluctuations in food and crude oil prices, exchange rate, and a combination of these). Average incomes in rural-south and rural-north households were N234.0 (�206.8) and N211.5 (�198.2) per person per day respectively. Food and other agricultural imports constituted 30.0% of total imports consumed by households. Poverty incidence was 55.0%, 47.3%, 75.1%, 40.4% and 47.2% respectively for Nigeria, rural-south, rural-north, urban-south and urban-north, while national inequality was 0.42. A 50.0% rise in food price increased poverty by 4.9%, 2.0%, 3.9% and 4.2% respectively for rural-south, rural-north, urban-south and urban-north. Conversely, a fall in oil price by 50.0% increased poverty by 3.0% in rural-north but reduced same by 8.7%, 0.8% and 1.8% in urban-north, rural-south and urban-south respectively. A 25.0% depreciation in the exchange rate increased poverty by 2.5%, 0.3%, 2.2% and 3.3% respectively in rural-south, rural-north, urban-south and urban-north. The combined impact of the shocks increased poverty by 8.6%, 7.1%, and 7.0% respectively in rural-south, rural-north and urban-south, although shocks did not impact on poverty among urban-north households. National inequality level dropped by 0.05% and 0.26%, respectively, following the increase in food price and exchange rate, while it rose by 1.41% due to the fall in oil price. Overall, shocks impacted all household groups mostly negatively but rural-north households were most affected, as they now accounted for about 47% of the poor in Nigeria after the shocks. This indicates that the challenge of poverty reduction is greatest in the rural-north, and hence interventions need be targeted at this region before others.