INEQUALITY, POLARIZATION AND POVERTY IN NIGERIA

Awoyemi Taiwo TimothyOluwatayo Isaac Busayo

Oluwakemi Adewusi

BACKGROUND

Nigeria: A country with large territoryFRN: 36 States plus FCT, Abuja12 Northern states, 12 Middle belts States, and 12 Southern statesThe states are subdivided into 774 (LGAs).Grouped into six geo - political zones on ethnic identity (ethno-linguistic fractionalization)374 identifiable ethnic groups

Political rivalryEthno-regional clusters: the Hausa-Fulani (39.1%), Yorubas (21.4%), Ibos (11.7%) (Total=72.7%)Effects: Civil War (1970)tension, civil unrestcompetitive rent-seeking activities, corruption, institutional failures, inefficiencypolarization and social conflict

PovertyHigh between 1980s - 90s (Canagarajah, et al., (1997) Head count ratio: Higher in the northern partsNorth east zone: Highest poverty incidence (67.3%)(NBS, 2006)South east zone: The least poverty incidence (34.2%) (NBS, 2006)Drop in relative poverty 65.6 per cent in 1996 to 54.4 per cent in 2004 (NBS, 2006).Further, urban sector declined by 15%, rural sector declined by 6.5%

InequalitiesInequality increased from 38.1 per cent in 1985 to 44.9 per cent in 1992. (Canagarajahet al, 1997).Top 10% of the income bracket accounts for 60% of total consumption (Okunmadewa, 1998)North West zone contributes (5.2 per cent) South East zone contributes the least (1.2 per cent) to the national inequality (Araar and Awoyemi, 2006)

PolarizationHigh regional differences in social and economic conditions (Ogoni case in oil producing Niger delta)Sectarian tensions and violenceTendencies for socially embedded inequalityVestiges of colonial administrationDual economies: rural and urbanGender inequalitiesSusceptibility of the country to disintegration Motivation: to detect and predict possibilities of social conflict and revolutionary tendenciesFurthering our under standing of the nature of distributive changes

Concept definitions

Inequalities Dispersion of the distribution of the attributes of the welfare indicatorsInversely linked with equalizing mean-preserving spreadsEmphasizes the deviation from the global mean, ignoring clustering around local means (Zhang and Kanbur, 2001)

Polarization

the clustering of incomes around local polesbuilding homogeneous clusters that oppose each otherInvolves disappearance of the middle classFails to satisfy the principle of transfers between polar groupBi-polarization: Considers only two poles

Research QuestionsSufficient evidences of double process of regional convergenceNational question: how to structure the state so that every ethnic or religious group and every Nigerian as an individual becomes a stakeholder?How do we detect inequality and polarization and empirically document the differences and their contribution to poverty in Nigeria?What are the reasons underlying the evolution of these phenomena?How bipolar is Nigeria society?How much do disparities in average living standards between zones, regions, urban and rural sectors contribute to the level of polarization or inequality in Nigeria?

General Research objective

To empirically document the evolution of inequality, polarization, bipolarization, and the driving force behind them as well as how these have contributed to the level of poverty in Nigeria

Specific objectivesempirically estimate the trends and levels in regional polarization, bipolarization, poverty and inequality of per capita expenditure distribution between 1996 - 2004 in Nigeria.identify and estimate the explanatory power of key dimensions along which polarization occurs in Nigeria assuming that income proximity determines the group to which one belongs. examine the origin of polarization in the regional distribution of per capita expenditure for the special case of two poles (bipolarization) and its link to poverty in Nigeria.estimate the contribution of within and between regional variations to total inequality, polarization, bipolarization andpoverty in Nigeria.

Scientific Contribution of the Research

Review and employ value-added measures to perform the decomposition of polarization indices into their component groupsInvestigate the link between polarization and poverty in Nigeria

Policy relevanceWeak democracy in Nigeria- low level of trust, tension, bitterness, violenceStrong correlation of economic status and social categories likeethnic and religion - polarization along these dimensionsImportance of the middle class as an engine of development and sustenance of democracyEgalitarian enhancing information, shed light on factors associated with conflictsHelp targeting of programmes education, health, infrastructureIdentifying and locating the poor and lagging regionsGuide decisions of private initiatives and LGAs reformThe need to judge the tax reform policiesAssessment of the present government policiesThe need to nurture specific programmes FEAP, NAPEP Size of Nigeria in Africa economy

Theoretical frameworkSignificant economic dualism in AfricaBroadly – backwash effectcircular and cumulative causation thesis (Myrdal, 1957)unequal natural resource endowments (Williamson, 1965)limited availability of arable land, distance from the sea and the prevalence of diseaseThe need to locate the poor and understand the dynamics of their distribution

Literature Review and Knowledge Gaps

Esteban and Ray (1994), Wolfson (1994)Duclos, Esteban and Ray (2004)Duclos and Echevin 2004Fedorov, 2002Rodriquez and Rafael Salas, 2006Dearth of information in these areasAighokhan 2000, NigeriaThe use of rigorous axiomatic decomposition method of polarization

Methodology

Data requirements and sourcesThe 1996 National Consumer Survey (NCS) 1998/99 General Household Survey data sets 2004 World Bank assisted National Living Standard Survey (NLSS) data.A two-stage cluster design was employedcluster of 120 housing units called enumeration area (EA) were randomly selected from each of the 36 states including FCTsecond stage: random selection of 5 housing units from the selected EAs 600 households were randomly chosen in each state and the FCT, summing up to 22,200 households in all For GHS in each state a sample of 120 EAs were selected for the survey10 housing units were randomly selected in each of the samplewe choose consumption as our indicator of well-being.

Analytical methods

Gini Coefficient: that could be used for individual data. For instance Lerman and Yitzhaki (1984)

2cov ( , )yar y rG

Ny=

1 ( , )3

yyG y r

yσ

ρ=

Milanovic (1997): Gini coefficient is the product of a constant, coefficient of variation of income and correlation coefficient between income and rank

Gini: Shapley decomposition approach

It is based on the ethical values that allows exact algebraic decomposition of Gini index (Araar 2004)

int inter raI C C= +

1( ..., )gI μ μ( ( ))i gI y μ μ

( )int 10.5 ( ) ( ,...,er i g GC I I y Iμ μ μ μ⎡ ⎤= − +⎣ ⎦

( ) ( )int 10.5 ,..., ( )ra G i gC I I I yμ μ μ μ⎡ ⎤= − +⎣ ⎦

PolarizationAxomsIS That is a greater distancing between two groups below and above the median increases polarizationIB A rank-preserving equalizing transfer between two individuals on the same side of the median increases polarizationSymmetry means that a reordering of incomes does not change the level of polarizationPrinciple of population: if an income distribution is pooled several times, then the degrees of polarization of the pooled and the original distributions are the sameNormalization attaches zero polarization to a perfectly equal income distribution.Continuity means that P will not take an abrupt jump for small changes in its argument

DER (2004) Polarization Estimation for Continuous Distributions

Avoid conceptual and practical problems of population distributed over a discrete and distinct number of pointsmeasurement theory of polarization for the case in which asset distributions can be described using density functions appropriate for the case of continuous distributions of our income variableIdentification-alienation frameworkDER take polarization to be proportional to the sum of all effective antagonismsDER re-define the axioms for continuous variablesbased on a density with finite support (kernel)symmetric reductions in dispersion that concentrate the density around its mean (squeezes)Determine the area of identification influence by nonparametric kernel techniquesEstimation of the polarization indices is done by substituting the distribution function by the empirical distribution functionDuclos et al. 2004 method, Horenstein and Olivieri (2004) method

Estimation method

[ ]

1( ) ( ) ( ) ,

.25,1

P f f x f y y x dydx

where

αα

α

+≡ −∫ ∫

*

1( ) ( ) ( ) ( )

G

j j kx yj k j

P F f x x y dF x dF yα

= ≠

= −∑∑∫ ∫

Bootstrap Method

to ascertain statistical inference for polarization measures It will allow us to build 95% confidence intervals, thereby enabling us to test for the existence of a significant change e.g Biewen (2002), Mills and Zandvakili(1997).

The index of polarization of Reynal-Querol

Л is the proportion of each groupi denotes a group N is the number of groupsRQ index of polarization has the usual properties of other indices’ propertiesThis index provides a ranking order of the different distributions of the populationsimilar to those in the measure proposed by ER (1994)The major difference between these two indices is in the form of the function; whereas IRC1 has a convex and concave part as explained in the proposalER is strictly convex for α > 1 (Reynal-Querol, 2002).

2

11 (0.5 ) 0.25

N

i ii

IRCI π π=

= − −∑

The Wolfson index-bipolarization

where T = 0.5 - L(0.5)L(0.5) = the value of the Lorenz curve at the 50th percentilem and µ are the median and mean respectively

2(2 ) ( )W T Gini m μ= −

Rodríguez and Salas's (2003) approach

where m is the median,µ is the mean F is the distribution functionSubtract BW within-groups from GB the between-groups Ginicoefficient computed for groups separated by the median valueconceptually, inequality and polarization can be viewed within the same framework, with addition and subtraction of the within-groups component corresponding to inequality and polarization, respectivelya connection between Wolfson’s concept of polarization and the polarization model of ER has been established

2( ) ( ) ( )B WP F G F G Fmμ ⎡ ⎤= −⎣ ⎦

Bipolarization-Poverty Link

bipolarization and poverty measures are closely related when the income value used to separate income groups represents the poverty line (Rodríguez, 2006)the normalized poverty deficit index is equal to the ER polarization measure, whether the poverty line is the mean income and the identification sensitivity parameter is unity.Wolfson polarization measures is a function of the normalized poverty deficit index, which belongs to the Foster–Greer– Thorbecke family of poverty measures (Foster et al., 1984).

Tsui and Wang (1998) Measure

f(yi) is the population share of group ik is the number of groups,yi, is the mean value in groupm is the median income. θ is a positive constant scalar and rє(0,1) we shall set r = 0.5

1( )

rkj

jj

y mT W f y

N mθ

=

−⎛ ⎞= ⎜ ⎟⎝ ⎠

∑

Zhang and Kanbur (2001)

require an a priori specification of clusters (groups of regions),measures the extent of inequality between these clusters derived from the GE index by decomposing it by populationinto within-group and between-group inequality and, then, taking a ratio of between and within components

1 11

( ... )k

g g kg

GE w I I μ=

= +∑ l l

1 1

1

( ,...., )k kk

g gg

Ibetween group inequalityKZwithin group inequality w I

μ μ

=

−= =

− ∑l l

Marginal contributions of the within and between group

1( , , ) ( , , )

G

g g gg

P Y z L P Y z Lϕ=

=∑

* *

1( , , ) ( , , )

G

g g gg

P Y z L P z Lϕ μ=

=∑

**

1( **, , ) ( , , )

G

g gg g

P Y z L P z Lμϕμ=

=∑

[ ]

[ ]

1 ( , ) ( ) ( ) ( , , )2

1 ( , ) ( ) ( ) ( , , )2

( , ) ( , , )( ) ( , , )

( ) ( , , )

SW

SB

g g g

g g gg

C P W B P B P W P z L

C P W B P W P B P z L

where P W B P Y z L andP B P z L

P W P z Y L

μ

μ

ϕ μ

μϕμ

= − + −

= − + −

=

=

=

∑∑

THANK YOU ALL