Degree Name

Master of Arts (MA)

Semester of Degree Completion

2016

Thesis Director

A. Désiré Adom

Abstract

This paper examines the relationship between poverty and the informal sector in Nigeria. In order to achieve this objective both primary and secondary sources of data mostly spanning from 1980 to 2014 are utilized. The methodology follows three stages. First, the Granger causality test is performed to determine the direction of causality. Using that information, a baseline model, along with several variants, is built on the next stage. Lastly, a robustness check is completed to ensure that the results do not exhibit severe spuriousness problems.

Granger causality tests indicate that the informal sector causes poverty. Overall, nine models including some key determinants of poverty, such as unemployment, debt service, inflation, rural population and corruption, are considered. The robustness check includes two distinct steps. First, different proxies for poverty and the informal sector are used. Second, a Jarque-Bera test is conducted. The findings from the check shows that the residuals are normally distributed and not spurious. The regression result reveals that as the informal sector expands, poverty expands too. Therefore, a reduction in the size of the informal sector could be targeted by decision makers in their attempt to fight poverty in Nigeria. In practice, policies focusing on curtailing red tapes or lengthy bureaucratic processes, stamping out corruption, and training as well as providing support to small business owners could be implemented or strengthened.

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