Welfare Distribution in Rural and Urban Centres in Nigeria: A Stochastic Dominance Approach

Abstract

Policy makers are interested in knowing the welfare effect of the many development programmes implemented in rural centres in Nigeria. This study applied stochastic dominance approach to show whether the aggregate welfare in rural centres was better than in urban centres using the household survey data for Nigeria collected by the national Bureau of Statistics. The monetary approach of measuring welfare was adopted and consumption expenditure was chosen over household income following its practicability in a developing country context. Adjustments were also made so as to fit welfare distribution as much as possible. The main findings were that rural centres had better aggregate welfare only for the class of welfare function that is equity loving. For the class of welfare function that is equity and efficiency loving, aggregate welfare dominance of rural centres over urban centres was inconclusive. However, with further imposition of Pigou Dalton transfer condition using the generalized Lorenz curve, rural aggregate welfare showed dominance over urban aggregate welfare. This suggests that redistribution of incomes through rural development programmes may have much more effect on rural aggregate welfare.