ANALYSIS OF THE IMPACT OF PHYSICAL AND SOCIAL CAPITAL ASSET HOLDINGS ON POVERTY AMONG FARM HOUSEHOLDS IN NIGERIA.
ABSTRACT:
The study was conducted to analyze the impact of physical and social capital asset holdings on poverty among farm households in Nigeria as a contribution towards finding a panacea to the poverty plague in the agricultural sector. The study used secondary data obtained from the Nigeria living Standard Survey data conducted in 2003/2004. Data were analyzed using descriptive statistics, Forster-Greer-Thorbeck poverty measures and Propensity score matching. Results showed that 90% of the households were headed by males, 54% had household sizes of 1-4 and 79% were within the active productive age of less than 60 years while 62% had no formal education. About 96% were married whereas only 18.83% of the married household heads engaged in polygamous marriage. About 92% owned land. Specifically, 16.4% owned less than 1 hectare of land, 64.3% owned between 1-4.999 hectares while 19.3% owned 5 hectares and above. The incidence, gap and severity of poverty decreased with larger areas of land. Only 47% had agricultural equipment. Shockingly, about 95% of this group had equipment worth less than ₦20,000. The incidence, gap and severity of poverty decreased with higher naira values of agricultural equipment. As high as 95.6% of the respondents had less than ₦99,999 in livestock value. 1.5% owned between ₦100,000-₦199,999 while 2.9% owned ₦200,000 and above worth in value. The incidence, gap and severity of poverty were least among respondents with between ₦100,000 and ₦200,000 worth of livestock. Social capital indicators selected included community participation, trust and density of membership of local level associations. Respondents who participated in community programmes had lower incidence, gap and severity of poverty. Respondents who do not trust people had higher incidence, gap and severity of poverty. Those that did not belong to any association had the highest incidence of poverty.The impact of owning agricultural equipment, land and livestock increased incomes of such households by ₦16,969.35, ₦9, 607.74 and ₦3, 677.44, respectively. Hence, the impact of owning agricultural equipment, land and livestock reduced poverty incidence by 65%, 58% and 33%, respectively. Also the impact of participating in community programmes, trusting group members and belonging to associations increased incomes of such households by ₦11, 793.49, ₦4, 015.82 and ₦12,415.75, respectively. Hence, the impact of participating in community programmes, trusting other people and being members of local level associations, reduced poverty incidence by 42%, 100% and 58%, respectively. The study recommends opening up virile credit lines and procurement modalities that can empower the households to acquire agricultural equipment; to revisit the controversial land use act of 1978 with a view to eliminating all bottle necks that impede land acquisition by the farm households. The study also recommends strong reawakening of the farmers’ cooperative movement as well as the encouragement of farmers to join other local level associations. TABLE OF CONTENTS PAGE
Title page - - - - - - - - - i
Certification - - - - - - - - - - ii
Dedication - - - - - - - - - - iii
Acknowledgement - - - - - - - - - iv
Abstract - - - - - - - - - v
List of Table of contents - - - - - - - - vi
List of tables - - - - - - - - - - viii
List of figures - - - - - - - - - - ix
List of appendices - - - - - - - - - x
CHAPTER ONE: INTRODUCTION
1.1 Background of the study- - - - - - - - 1
1.2 Problem statement - - - - - - - - 3
1.3 Objectives of the study - - - - - - - 5
1.4 Hypotheses of the study - - - - - - - 5
1.5 Justification of the study - - - - - - - 5
1.6 Limitations of the study - - - - - - - 7
CHAPTER TWO: LITERATURE REVIEW
2.1 Concept of poverty, social capital and physical assets - - - 8
2.2 Physical assets endowment as determinants of poverty in Nigeria - - 12
2.3 Roles of physical assets to household welfare - - - - 13
2.4 The general welfare generating mechanism of assets - - - - 14
2.5 Roles of social capital on household welfare - - - - - 16
2.6 Household assets and Inequality - - - - - - 17
2.7 Measurement problem of social capital - - - - - 19
2.8 Limitations of social capital usage - - - - - - 21
2.9 Household characteristics and poverty in Nigeria - - - - 22
2.10 Nigeria: poverty profile and poverty alleviation projects - - - 24
2.11 Theoretical Framework - - - - - - - 26
2.11.1 Theoretical framework for asset accumulation - - - - 26
2.11.2 Theoretical framework for social capital usage - - - - 27
2.11.3 Theoretical framework for physical, social capital and poverty - - 28
2.12 Basic theory of impact evaluation - - - - - - 31
2.13 Analytical Framework - - - - - - - 33
2.13.1 Randomization - - - - - - - - 34
2.13.2 Double difference (or difference in difference) - - - - 34
2.13.3 Instrumental Variable Techniques - - - - - - 34
2.13.4 Propensity Score Matching - - - - - - - 35
2.13.5 Estimating standard errors with propensity score matching - - - 40
2.14 Review of poverty measures - - - - - - - 40
2.14.1 Head count Index - - - - - - -- - 40
2.14.2 Poverty Gap Index - - - - - - - - 42
2.14.3 Squared Poverty Gap (poverty severity) index - - - - 43
2.15 Sen Index - - - - - - - - - 45
2.5 The Sen-Shorock-Thon Index - - - - - - - 46
2.6 The Watts Index - - - - - - - - 46
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Study area - - - - - - - - - 48
3.2 Source of data - - - - - - - - - 48
3.3 Analytical techniques - - - - - - - - 49
3.4 Model specification - - - - - - - - 50
3.4.1 Poverty measure - - - - - - - - 50
3.4.2 The propensity score model - - - - - - - 50
3.4.3 Estimation of Average Treatment Effect based on the Propensity score - 51
3.4.4 The propensity score matching procedure - - - - - 55
CHAPTER FOUR: RESULTS AND DISCUSSION
4.1 Size and composition of Human capital assets- - - - - 56
4.1.1 Household size of the respondents - - - - - - 56
4.1.2 Age of Household Heads - - - - - - - 56
4.1.3 Level of Education of Household Heads - - - - - 57
4.1.4 Marital Status of the Household Heads - - - - - 58
4.2 Size and Composition of Physical asset holdings - - - - 58
4.2.1 Ownership of land by the respondents in hectares - - - - 58
4.2.2 Ownership of livestock by respondents - - - - - 59
4.2.3 Ownership of Agricultural equipment by respondents- - - - 59
4.3 Size and composition of Social Capital indicators - - - - 60
4.4 Decomposition of Poverty measure according to farm asset - - - 62
4.4.1 Decomposition of Poverty according to size of land - - - - 62
4.4.2 Decomposition of Poverty according to value of agricultural equipment - 63
4.4.3 Decomposition of Poverty according to value of livestock - - - 64
4.5 Decomposition of Poverty according to social capital proxies- - - 65
4.5.1 Decomposition of Poverty according to measure of Trust - - - 65
4.5.2 Decomposition of Poverty according to Density of association- - - 65
4.5.3 Decomposition of Poverty according to participation in community programme. 66
4.6: Distribution of Poverty according to gender of household head - - 67
4.7 Distribution of poverty according to sector of residence - - - 67
4.8 Impact of farm household physical asset holdings on poverty - - - 68
4.9 Impact of social capital proxies on poverty - - - - - 73
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION.
5.1 Summary - - - - - - - - - 79
5.2 Conclusion - - - - - - - - - 83
5.3 Recommendations - - - - - - - - 84
5.4 Suggestion for Further Research - - - - - - 85
REFERENCES- - - - - - - - - - 86
APPENDICES- - - - - - - - - - 102
CHAPTER ONE
1.0 Introduction
1.1 Background Information
The rate of poverty incidence in Nigeria in the past three decades has been a major concern for policy makers. National Bureau of Statistics, NBS (2005) recorded that the incidence of poverty in Nigeria increased sharply between 1980 (28.1%) and 1985 (46.3%) and although there was a slight decrease in poverty between 1985 and 1992 (42.7%), poverty incidence increased to 65.6% in 1996.Poverty incidence in Nigeria stood at 70%; 2007 estimate according to CIA (2011). Unfortunately, these numbers are getting worse. Between 1993 and 2003, the share of the population living in extreme poverty (US$1/day income) rose from 59 percent to 71 percent, and the share living in moderate poverty (US$2/day income) rose from 85 percent to 92 percent (WDI 2007). A worrisome dimension is the fact that poverty is disproportionately concentrated among households whose primary livelihood depends on agricultural activities. Besides the fact that there have been some level of agricultural growth of 6.5% between 2002-2006 in Nigeria and then 40.84% of GDP in 2010(NBS, 2011), the problem of poverty among farm families still persists (WDI, 2007).
World Bank (2008) recorded that Nigeria`s rural space is home to 53% of the nation’s population and also home to more than 70% of the nation`s poor. Notwithstanding the increasing rate of poverty among farm households, the Nigeria agricultural policy focus of food self-sufficiency is still couched mainly in terms of increasing physical output of domestically produced commodities, neglecting the issue of income of farm households, thus making the agricultural policy, commodity centered instead of people centered (Idachaba, 2006).
One of the effective ways through which agricultural income of farm households can be improved is by broadening their household physical asset base. Chaudhry, Malik and Hassan (2009) had posited that physical assets contribute significantly to per capita income.Escobal and Torero (2005) observed that complementarities between social and physical assets and between private and public assets may be responsible for different patterns of income growth. Physical assets are commonly portrayed as the most important determinant of income and investment strategies, and it has been argued that a more equitable distribution of assets could contribute to poverty alleviation (Rahman and Westley 2001). Physical assets help to increase opportunities to be more productive or to obtain credit facilities and even to serve as safety nets. Diversity in asset choice is important in order to allow households to manage risks in any one period. In fact any household that lacks access to physical assets and other productive resources is unlikely to survive any negative shock and as a survival strategy will adapt risk averse production strategies (Aryeetey, 2004). Moreover, the distribution of assets will also affect the rate of returns to investments, thus reinforcing the tendency towards income inequality (Walle and Gunewardena, 2001). Unequal distribution of assets affects the equal distribution of opportunities for building both physical and human capital in the future (Deininger and Squire, 1998; Deininger and Olinto, 2000).
In general, the distribution of assets is the key determinant of income distribution (Alesina and Rodrik, 1994). For example, Finan, Sadoulet and de-Janvry, (2002) found out that for small landholders, an additional hectare of land increases welfare on average by 1.3 times the earnings of an agricultural worker. In fact the failure of many poverty reduction interventions has been because they ignored the great diversity and heterogeneity of asset portfolio across households (Finan, Sadoulet and de-Janvry, 2002).
Farm householdsown anduse a variety of assets for their various agricultural production activities. The asset portfolio of the farmer may include livestock, farm equipment, buildings, farm lands (hectares of cropped land), net savings, net remittances, consumer durables, non-real estate assets and social capital. Aryeetey and Udry (1998) constructed four simple asset categories: house (which is the value of the house plus consumer durables), farm (the value of livestock, farm equipment, and other lands), non-farm (the value of assets of the non-farm enterprise), and finance (the value of cash balances, financial savings, shares, net remittance assets). Moser (2007) defined physical assets as the stock of plant, equipment, infrastructure and other productive resources owned by individuals, the business sector or the entire country. This study consider physical assets as those productive assets of the farm household that includes the value of livestock, farm equipment and other lands owned by the household. However, human capital, financial assets, house and its content are excluded from this definition. The physical assets considered in this study include land, more importantly because it is regarded in most developing countries as the main physical asset of farm households (Reardon and Vosti, 1995; Pablo and Jose Maria, 2009), it is the basis of agricultural production for both home consumption and sales. Land is also possible collateral for loans, gives security towards shocks as a store of wealth, and is a place for housing. (World Bank 1999; Freeman et al. 2004; Agudelo et al. 2003; De Janvry and Sadoulet 2000.); livestock, because it contributes 40% of the global value of agricultural outputs and supports the livelihood of 700 million poor farmers (Spore,2011); and agricultural equipment and machinery.
Social capital represents the ability of households to secure benefits by virtue of membership of social networks or other social structures (Portes, 1998). The social capital of a society includes the institutions, the relationships, the attitudes and values that govern interactions among people and contribute to economic and social development (Grootaert and Bastelear, 2002). Social capital as an asset has gained significant recognition in determining economic and welfare outcomes at the household level which cannot be explained by differences in traditional production inputs such as labour, land, human and physical capital (Grootaert, 1999). Furthermore, Narayan and Pritchett, 1997; Grootaert, 1999 showed that social capital had greater influence on economic outcome compared with human capital and other forms of capital.
Social capital complements human and physical capital in order to realize the full benefits of any development programme (Okunmadewa et al, 2005). Studies in Nigeria have shown that the poor derive more benefits from their membership of local associations compared with publicly instituted organizations (World Bank, 1996; Olayemi et al, 1999; Okunmadewa, 1998; and World Bank/DFID, 2000). World Bank (1999) found out that the poor in Nigeria turn to local community based organizations (CBOs) as the main safety net for their well being. Prominent among these social safety nets are religious groups, traditional leadership, educational institutions, women's group and traditional financial institutions among others.
Poverty in this study was based on household per capita expenditure instead on income. The purpose of doing this is because of some reasons. First respondents may find it more difficult to recall all their income as many income sources may be informal or transient; this is less likely to be a problem with expenditure, the bulk of which may be more frequent and regular. Secondly, respondents may have an incentive to understate or not declare certain sources of income if they fear that the information may be used for taxation purposes. Thirdly, respondents may have difficulty in calculating profits from household enterprises for which no formal accounts exist, and may simply not record them. Above all, the poverty indices in Nigeria are calculated based on household expenditure per capita.
1.2 Problem Statement
Assets and social capital are commonly seen as major determinants of rural households’ poverty in developing countries (Reardon and Vosti 1995; Freeman et al. 2004; Carter and Barrett 2006; Grootaert and Bastelear, 2002; Okunmadewa, Yusuf and Omonona, 2007). Investments into assets and social capital have been believed to raise households out of poverty through participating in an upward spiral of capital accumulation and rising welfare levels. Despite these perceived importance of assets and social capital networks in enhancing income of farm households, the mechanism through which they impact on poverty is not yet known in Nigeria. This yawning knowledge gap has continued to persist, notwithstanding the deepening poverty especially among farm households in Nigeria.
However, the actual dynamics of how these assets impact on farm household poverty is rarely studied (Penttinen, 2008). Olaniyan, (2003) also observed that the contribution of household physical asset endowments to poverty has received insufficient attention despite the fact that they are invaluable to poverty outcomes.
Though, a number of studies treated household poverty and social capital separately in Nigeria (Omonona 2001; Okunmadewa 2001), studies on empirically establishing the link between social capital and household welfare are scanty in Nigeria with the notable exception of Okunmadewa,et al. (2005), which focused on social capital and poverty. In all these studies, the link between the socioeconomic attributes of farm households, their physical asset and social capital endowment and their effect on poverty have not been established empirically in Nigeria.
The asset choices which farm households make in Nigeria have not been examined nor valued. A diverse portfolio of assets is not only critical for households to cope with unexpected shocks, but can free access to a range of consumption smoothing options and mechanisms that are vital for them to maximize utility over time. Diversity in asset choice is also important in order to allow households to manage risk in any one period. These attributes are especially important in developing countries where the lack of sufficient access to consumption smoothing mechanisms can perpetuate and worsen poverty (Aryeetey 2004). A household that is constrained in its access to physical assets may not be able to survive a negative shock. In practice, many households do survive, but at the cost of adopting an extremely risk averse production strategy. In many rural areas, for example, this strategy might be reflected in the sacrifice of expected return as farmers choose safer, lower yielding enterprises. This perpetuates the vicious cycle of poverty and hampers economic growth as the credit and/or other constraints push farmers to a sub-optimal path.
To comprehensively fight poverty and enhance the incomes of farm households in Nigeria, there is need to focus on their physical assets and social capital portfolios through which the income is generated. Hence the questions are: how do asset holdings including social capital networks differ among farm households of different poverty level? What is the connection between household socioeconomic attributes, diversity of physical assets and social capital endowment in determining poverty in Nigeria? To what extent does assets and social capital contribute to poverty reduction? It is expected that households that have a lot of physical and social capital assets are unlikely to be poor. They will have access to productive resources, especially from their groups, more than those that do not have. Also they will be less risk averse in the production and can easily cope with sudden shocks and hence be less poor.
1.3 Objectives of the Study
The broad objective of this study is to determine the impact of physical and social capital asset holdings on poverty among farm households in Nigeria, while the specific objectives are to:
a. describe the human capital assets of the farm households;
b. ascertain the size and composition of physical asset holdings of farm households in Nigeria;
c. ascertain the social capital dimensions engaged by farm households in Nigeria;
d. determine the poverty incidence, gap and severity of farm households according to their physical and social capital asset holdings;
e. estimate the impact of these asset holdings on farm household poverty in Nigeria and
1.4 Research Hypotheses
This study is guided by the following hypotheses:
a. There are no significant differences in poverty between households with physical asset endowments and those without.
b. There are no significant differences in poverty between households with social capital proxies and those without.
1.5 Justification
Unraveling the contributions of farm household physical assets and social capital endowments to poverty reduction is very imperative as analysts and policy makers are seeking alternative mechanisms through which the biting poverty especially among farm households can be reduced. Since asset holdings define a household’s capability to pursue different livelihood activities that generate income, sustainable poverty reduction needs to be built on a solid understanding of household asset positions and the contexts where assets are used as the basis for identifying livelihood strategies that lead to pathways out of poverty (Burke, Jayne, Freeman and Kristjanson, 2007). Understanding the dynamics of assets in household economics would add to the knowledge on household income and investment strategies and perhaps even suggest pathways out of poverty.
This study is also motivated by the need to expand research on social capital and its effects on poverty. Studies of social capital and its economic payoffs have tended to focus more on industrialized countries. Most empirical studies on the impact of social capital in Nigeria are set in the context of specific projects or in a limited geographical areas like the work of Olomola, (2002) who examined the effects of social capital on the performance of informal finance groups in the rural areas of western Nigeria and Yusuf, (2008) whose work dwelt on social capital and household welfare in Kwara state, Nigeria. The use of national-level data set in Nigeria to quantify the impact of social capital on poverty seems to be quite rare. These studies have also rarely quantified the impact in a formal analysis, i.e. controlling for other factors which affect outcomes. This study will attempt to quantify the impact of social capital on household poverty at the national level, while controlling for other factors which affect poverty.
According to Okunmadewa, Yusuf and Omonona, (2005), there is still a general dearth of study on estimating the impact of demographic, human capital, occupational, and physical capital on poverty among Nigerian households not to talk of the social capital phenomenon. This is evidenced from the gaps in knowledge that this study intends to fill. First, given the huge geographical and cultural diversity of the country and the fact that the country remains the largest in Africa in terms of population, a nationwide study which incorporates all the diversity of the country, is justified. Second, the development of social capital as an overarching goal of the latest attempt at poverty reduction is premised on the results of qualitative studies. Since there are more robust quantitative techniques through the inclusion of social capital factors in the determinants of poverty and welfare, it will be necessary to apply this technique to the Nigerian situation. This is more so within the context of the findings by Narayan and Pritchett (1997) and Grootaert (1999).
This study is further justified by the fact that there are few studies on the impact of household physical asset holdings on poverty in Nigeria despite Grootaert (1997) observation that these assets serve as sources of opportunities (or constraints) to getting out of poverty by different households by providing opportunities to be more productive or to obtain credit facilities or even to serve as safety nets. Most policy and research interests regarding rural credit markets revolve around the perception that poor rural households in developing countries lack adequate access to credit, which is believed to have significant negative consequences on various aggregate and household-level outcomes, including technology adoption, agricultural productivity, food security, nutrition, health, and overall household welfare (Diagne, Zeller and Sharma,2000). The outcome of this study will therefore serve a useful purpose in formulating national policies aimed at tackling the scourge of poverty and enhancing human welfare among farm households in Nigeria.
1.6: Limitations of the study
The study was aimed at examining the impact of physical and social capital asset endowment on poverty among farm households in Nigeria. Getting a nationally representative data was a herculean task as to possibly venture into trend analysis. Moreover, the 2008 round of the Nigeria Living Standard Survey has not been able to see the light of the day as at the time of completing this study leading to the usage of the most recent data. It was the ambition to examine transitory and chronic poverty but for dearth of data. This highlights the need to build up comprehensive and up to date household database.
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