Steve Onyeiwu Jialu Liu Department of Economics, Allegheny College, Meadville, Pennsylvania, USA Determinants of Income Poverty in Rural Africa: A Comparative Study of Kenya and Nigeria 1

Motivation Questions About Africa & the Millennium Development Goals The Debate Over Growth and Aid (Jeff Sachs Versus Bill Easterly) Aid Fatigue: Billions of $ in Aid; Yet High Poverty Rates Impressive Growth Rates,;High Incidence of Poverty and Inequality Poverty More Severe in Rural African Villages (Rural-Urban Migration & Urban Congestion/Slums) Beyond Growth and Aid: Enhancing the Income-Earning Capacities of Rural Households [Amartya Sen (1989)] 2

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Goals and objectives What Determines the Income-Earning Capabilities of African Rural Dwellers? Analysis of Surveys in Kenya and Nigeria to Gain Insight into Socio-Economic & Demographic Characteristics of Rural Households in Africa Comparison of Rural Households in Kenya and Nigeria ---are Africans Really Heterogeneous? Use of Panel and Cross-Sectional Regressions on Survey Data to identify the Determinants of Income Explore Policy Implications for Poverty Alleviation 6

Literature review Lack of Productive Assets as a Major Constraint; but Controversy About Most Important Assets Mehrotra and Delamonica (2007): Excess Labor Supply, then Land is an Important Asset that Determines Income Level. Rural poverty in East and Southern Africa attributable to concentration of landholdings. White Farmers in Zimbabwe; Absentee Landowners Krishna and Shariff (2011): Distinction between assets that prevent households from falling into poverty, and those that help them get out of poverty. Land ownership can help avoid falling into poverty, but can’t extricate from poverty. Proximity to a city is key for alleviating poverty. Non-agricultural sources of income key to poverty alleviation 7

Literature review (cont.) Khandker and Koolwall (2010): Proximity to an urban area is key to higher income and poverty alleviation Alarya, et al. (2011): Irrigated agriculture and non-farm activities are more important than livestock ownership. Income Diversification: Salience of Non-Farm Sources of Income [(Turner, et al. (2011), Haggblade and Reardon (2010) Critics of Income Diversification----“Rural Dependency” [Bryceson (2004), Eastwood (2006)] Our Contributions to Literature: use of a theoretical model, surveys and econometrics to investigate the salience of farm and nonfarm sources of income for the rural poor Offer Insights Regarding Why Growth Has Not Been Poverty-Alleviating in Rural Africa 8

Theoretical model Each household spends an optimal amount of time u working on farm, and the rest on non-farm work. y – the household income h – human capital l – labor z – land k – productive capital and livestock 9

Theoretical model For households with no productive capital (k=0) and human capital (h=0):  they choose u=1 (100% time in the farm sector) Their per capita income is: 10

Theoretical model For household with some productive and human capital (k>0, h>0):  They choose  Their per capita income becomes: 11

Empirical model log(y i /l i ) is the logarithm of per capita household income. di is a vector including household size, the average age of adult family members, proportion of female family members, farm labour, non-working family members, disabled members, and students. hi is a proxy for average education level of the household. zi represents land holding and land value. ki is a vector of livestock and production assets. 12

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Conclusions Non-Farm Activities are More Important than Farming as Income Sources Occupational Specialization Exacerbates Poverty; diversification is good for households. Sub-optimal investment in human capital by rural households explains the weak link between growth and poverty alleviation. It also explains rural inequality. 24

Conclusions (cont.) Investment in Education Enhances Opportunities for Non-Farm Income To Reduce Feminization of Poverty, Education Should be Targeted at Women Intensify Efforts to Reduce Fertility Rates Cultural Attitudes to Women Education and Fertility Need to Change 25