Devonomics

Devonomics

It is difficult to answer questions about how Nigeria can and should achieve sustainable economic, social and political growth. This column takes a look at well known development economic theories and applies them to the unique Nigerian context.

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Exploring Inequality & Growth in Nigeria

Martha Sambe

Martha Sambe

Martha is a graduate of Development Economics and International Cooperation from the University of Rome, Tor Vergata. She enjoys writing and researching topics in development, sociology, and religion.

Recently, I came across the idea that some inequality is necessary for economic growth. As unsettling as this sounded to my egalitarian ears, it turned out there were some valid points to support the notion too.

What theory tells us is that, first, inequality fosters innovation. This arises from the opportunity of moving from a low-income group to a higher income group as a result of one’s innovations. The incentives that accrue to innovators, often in the form of a higher income, serve as motivation for the outside-the-box thinking and risk-taking that sparks innovation and technological advance. The innovators become better off than most members of the population due to higher income earned (thereby widening the income gap), but their innovations lead to increased productivity and output; consequently, increased growth. It is important to note here that the potential for upward economic mobility is the factor which fosters innovation and not just a mere prevalence of inequality. 

The second point is that high-income earners are more likely to save than low-income earners. As a result, the returns on their savings further widens the inequality gap (since low-income earners save little or nothing at all). But the savings behaviour of high-income earners has a positive effect on the economy via capital accumulation. This is stressed in this study which explores the relationship between savings, capital accumulation and economic growth in Nigeria.

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