Variability in agricultural productivity and rural household consumption inequality: Evidence from Nigeria and Uganda

Mulubrhan Amare,Hiroyuki Takeshima,Bekele Shiferaw,George Mavrotas

doi:10.1111/agec.12604

Abstract

AbstractThis paper uses multiple rounds of panel data to assess the distributional implications of the variability in agricultural productivity in Nigeria and Uganda. It uses both a conventional decomposition and a regression‐based inequality decomposition approach to estimate the impact of climate‐induced variability in agricultural productivity. To mitigate the endogeneity associated with unobserved time‐invariant and time‐variant household fixed effects, we use rainfall shocks as a proxy for estimating the exogenous variability in agricultural productivity that affects consumption. Results suggest that a 10% increase in the variability of agricultural productivity tends to decrease household consumption by 3.7 and 5.2% on average for Nigeria and Uganda, respectively. Controlling for other factors, variability in agricultural productivity contributed to between 25% and 43% of consumption inequality between 2010 and 2015 for Nigeria; and 16% and 31% of consumption inequality between 2009 and 2011 for Uganda. We also show that variability in agricultural productivity increases changes in consumption inequality over time.

Highlights

Economic inequality can hamper economic growth, hurt social cohesion, sometimes leading to conflict, and slow poverty reduction efforts
We find that a negative rainfall shock decreases agricultural productivity by 7% and 36% in Nigeria and Uganda, respectively
The first-stage estimation is mainly used in the later fixed-effects instrumental variable (FE-IV) analysis to explain household consumption and inequality

Summary

Introduction

Economic inequality can hamper economic growth, hurt social cohesion, sometimes leading to conflict, and slow poverty reduction efforts. The reduction of inequality is an important development objective on its own merit (Shepherd et al, 2014). Africa (SSA), in particular, has greater inequality in living standards than that seen in any other region except Latin America and the Caribbean (Okojie & Shimeles, 2006; Sahn & Stifel, 2000, 2003). Inequality in the SSA region has remained high over the past two decades, with regional Gini coefficient indices of 0.52 in 1993 and 0.56 in 2008 (Beegle, Christiansen, Andrew, & Isis, 2016). Rising inequality may reflect a lack of economic opportunity and may itself limit the growth potential of economies by not allowing all economic agents to fully exploit new opportunities (Marrero, Rodríguez, & van der Weide, 2016)

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Results

Conclusion