Decomposition Analysis Of Inequalities In Household Consumption Expenditure In Nigeria

ABSTRACT

Income inequality is one of the major underdevelopment problems facing developing countries

including Nigeria. Despite serious attention given to inequality in both theoretical and empirical

literature, it is still understudied in the case of Nigeria because most empirical studies

overaggregate analysis. This study departs from existing studies in two ways. First, the study

disaggregates household consumption expenditure into food and nonfood and thus decomposes

inequality into within-groups and between-groups components using generalised Entropy (GE)

measures. The purpose is to ascertain where inequality in household consumption expenditure is

coming from. Second, the study employs regression-based inequality decomposition to ascertain

the determinants of inequality in food and nonfood expenditure using household demographic

and socioeconomic characteristics as covariates. The data used in the analyses is the 2010

Harmonised Household Living Standards Survey for Nigeria. The results show that nonfood

expenditure is the major source of inequality in household consumption expenditure in both

urban and rural areas with inequality coefficients of above 0.6 compared to about 0.4 for food

expenditure. The decompositions also show that within-group inequalities for nonfood and food

expenditure are respectively 0.97 and 0.365 using the Theil index, while between-group

inequalities for nonfood and food are respectively 0.016 and 0.035. Furthermore, the regression

based inequality decompositions show that variables such as living in rural areas, household

size, household dwelling and household dwelling characteristics account for the significant

proportion of inequality in food and nonfood expenditure. The policy recommendation of this

study, among others, is that policies should focus on addressing inequality within rural and

urban areas especially with respect to nonfood expenditure than in inequality existing between

urban and rural areas. Some of the nonfood expenditures that need to be paid attention to are expenditure in education, health, energy, accommodation, water and sanitation.