Economic Growth, Income Inequality and Poverty in Nigeria
Abstract
Evidence from the literature is that increased growth rate is expected to reduce poverty. As a result, there are two schools of thought in the nexus between growth and poverty. First, growth generated by the labour intensive sector, such as agriculture and manufacturing, is more poverty-reducing than growth from extractive sector. Second, high income inequality affects the poverty-reducing effect of growth. Given the level of increase in growth rate in Nigeria in the last 2 decades, the incidence of poverty is still on the increase. The aim of this paper is to establish the validity or otherwise of the 2 hypotheses and determine the level of inequality above, which inequality will affect the poverty-reducing ability of growth in Nigeria between 1980 and 2017. Given the set objectives, Autoregressive Distributive Lag (ARDL) technique is employed for the first and the Threshold Regression Approach is used for the second. Results show the interaction of inequality and growth adversely affects poverty in both periods under investigation but the effect is statistically insignificant, while inequality has a positive and significant effect on poverty in both periods. At the threshold value of 0.45, the result reveals a statistically significant direct association between poverty and growth at an inequality value above the threshold value while at an inequality value below the threshold value; the relationship is negative but statistically insignificant. The results imply that the nature of growth in Nigeria is from the mineral-based (extractive) sector not the labour-intensive sector, thus, its inability to lessen poverty in the long period. The paper recommends promotion of labour-intensive sector as against the mineral-based sector. That is, there is a need for diversification.
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