AN ANALYSIS OF THE DISTORTION BETWEEN ECONOMIC GROWTH AND POVERTY RATE IN NIGERIA

Abstract

Positive growth rate, from the neoclassical perspective, is synonymous to increase in economic prosperity, resulting to a long –run negative effect on poverty incidence. However, the Nigerian economy presents a distortion of this relationship and expectation. The economic expansions that characterized the economy, reflected in the sustained positive growth rate in real Gross Domestic Product (GDP) has not impacted negatively on the country’s poverty population. Explaining this distortion, this paper demonstrates that the presence of growing inequality in income distribution exists as a standbetween variable, weakening the effectiveness of economic growth in spreading the gains of prosperity. Thus, economic growth and poverty incidence in the country change in the same direction; instead of economic growth exerting a depressing effect on poverty rate, the rate of inequality in income distribution depresses the real GDP growth rate, hence counters the desired impact that it should have had on the poverty incidence. The above results were preceded and revealed by Multiple Regression analysis and Wald Test Coefficient Restriction of poverty incidence as a function of economic growth rate and Gini coefficient. In this paper, eliminating or substantial reduction in the rate of inequality in income distribution, through the imposition of property and expenditure taxes to the setting up of National Welfare Scheme targeted at the poor, are suggested as ways through which economic growth in the short-run can result to reduction in poverty level.