Abstract
This study provides an ex ante analysis of the welfare effect from the improvement of border road infrastructure in Nigeria. It assesses how changes in the price of food commodities induced by border road improvements would affect different types of households. Finally, we also examine how simulated changes in local transportation costs, stemming from road improvements, would affect local prices of imported rice, and taking into consideration the effect of simulated price changes on household welfare across household head, gender, and household location (rural and urban households). Results indicate that policies aiming to improve border roads and thereby lower transportation costs, and subsequently the price of the regularly consumed household commodity, would be more beneficial to rural than urban households. Such policies would likely produce larger welfare gain for poorer households than richer households and would be more beneficial for the poorest female-headed households than their male counterparts.
Introduction
Road infrastructure is one important means of cross-border trade between Nigeria and its neighbors, especially those in the Western Africa region. Both formal and informal trading activities require this form of infrastructure to transport imported and exported goods from the source to the destination market. As informal cross-border trade alone is estimated to account for around 20% of Nigeria’s gross domestic product (GDP; Blum, 2014), road infrastructure clearly matters for the country’s economy. The borders are also an important source of livelihoods for women, who constitute a major proportion of cross-border traders. In the western and central parts of Africa, 60% of traders who use border access are women (Afrika & Ajumbo, 2012). The main traded items are vegetable oil, household items, rice, and other agricultural produce.
The Seme border is named after the Nigerian border town that connects with other West African countries via the Benin Republic. This route is seen as an important channel for better regional integration within the Economic Community of West African States (ECOWAS), due to Nigeria’s immense and steadily growing national consumer market (Blum, 2014). In addition, major road transit routes crossing this border provide the most direct, and in some cases, the only road transport connection between the capitals of countries in the ECOWAS region (Akpan, 2014). The Seme border is also the starting point for roads connecting some landlocked countries in the hinterland, such as Burkina Faso. Most of these countries generate the bulk of their foreign exchange through transit and re-export (Golub, 2012), thereby creating a large and lucrative market, despite their geographic disadvantage. For Nigerian traders, on the other hand, the Seme border provides access to regional markets to trade agricultural products and locally made fabrics, among other products (Njikam & Tchouassi, 2011).
Noting the importance of Seme border for trading activities within the ECOWAS subregion, the Nigerian government, with the support of the ECOWAS Commission, the governments of neighboring countries, and multilateral agencies (such as the World Bank), began reconstruction of the road leading to this border in 2009. The aim of this reconstruction includes reducing trade costs that arise from illegal checkpoints, heightened transport and insurance costs, accidents, and haulage breakdowns (Ackah, Turkson, & Opoku, 2012; Deen-Swarray, Adekunle, & Odularu, 2012), and to enhance regional integration through cross-border trade.
As it is typical of development projects in a number of developing countries, including those in Africa, discontinuity of such projects has remained one of the prevailing endogenous problems hindering infrastructural development. Some political and socioeconomic factors that hinder project continuity in these countries include bureaucratic bottlenecks tied to the allocations of economic resources to such projects (Jo-Ansie, 2007), corruption (Efobi, 2015), and the lack of political will to continue with development projects initiated by the preceding governments. Given the recent political transition in Nigeria, 1 it remains to be seen whether there will be continuity of the border road reconstruction as a matter of priority for the current government.
The discontinuity in the reconstruction of the border road project would most likely have an important, but differential impact on households. The most likely effect would be increased prices of goods that are traded across the border (mostly nonfood items like cosmetics, pharmaceutical drugs, and electronics), and food products such as rice (Afrika & Ajumbo, 2012; Blum, 2014). Such developments would translate into reduced household consumption, particularly of products whose prices would increase. Women may even be more vulnerable than men because of their overreliance on cross-border transportation for trade, and their other domestic responsibilities that involve road transport (Amoatey, 2006; Masika & Baden, 1997). Women as consumers would be particularly affected by the increased prices of food and household items coming from the border because, as has been proven empirically (Newman, 2002; United Nations Conference on Trade and Development [UNCTAD], 2011), women allocate more of their resources to the purchase of such products than men. 2
The issue of gender, especially in relation to welfare, is beginning to gain policy attention in Nigeria. This is because Nigerian women, like women in other developing countries, are economically constrained in terms of their earning capacity, and they are poorer than their male counterparts (Fapohunda, 2012; Makama, 2013; National Bureau of Statistics, 2013). Development practitioners, therefore, advocate for studies with a focus on household poverty and consumption that include a gender perspective of the issues. In light of this, this study aims to examine the welfare effect that would arise from improving Seme border road infrastructure, with a focus on gender differences.
This study uses an ex ante approach in its estimations. As at the time of this study, rice was the highest imported commodity from this border, and it had the highest share of the average household food budget in Nigeria. The potential impact of the price effects of this commodity on household consumption and welfare by gender and the household location was analyzed. In particular, the study (a) describes income distribution in the Nigerian states contained in the sample; (b) analyses the relationship between income, household food expenditures, and expenditures on imported rice with the aim of assessing how changes in the price of such food commodities induced by border road improvements would affect different categories of households; (c) analyzes how simulated changes in local transportation costs stemming from road improvements would affect local prices of imported rice; and (d) estimates the effects on consumption and welfare of the simulated price changes by gender of household head and household location (rural and urban households).
The finding of the study is empirically relevant to issues on trade and gender, and policy-making. The contribution consists of examining not only how cross-border trade affects welfare across genders but also how the distance from the household location to the border and the improvement in road infrastructure would affect household welfare. Nicita (2009) and UNCTAD (2011) used a similar analytical approach to explain the effects of trade liberalization on household welfare in Mexico and Cape Verde. However, this study complements theirs by considering Seme border road infrastructure project and household welfare. With regard to policy-making, a simulation analysis using transportation costs to Seme border from different household locations provides insight on the impact of improved road infrastructure and border access on households. In broader terms, as the welfare of women is an important policy issue for the sustainability of national development, 3 this study can offer policymakers an ex ante analysis for the implementation of the post-2015 Sustainable Development Goals. Given Nigeria’s economic and socio-cultural influence within the region, findings relating to Nigeria on issues such as gender may be useful for policymakers in other African countries.
This study begins by situating the issues of interest in a policy context and presenting stylized facts about Nigeria’s trade regime and household welfare. This is followed by a literature review, which also discusses the relevant theoretical underpinnings of this study and an explanation of the research method. The fifth section introduces and interprets the results. The discussion is in the sixth section, while the seventh section then concludes the study.
General Context of the Analysis
This section aims to clarify the context of the border road improvement policy by briefly assessing the importance of the Seme border as a major road transport corridor that connects Nigeria to the Republic of Benin, and indirectly to other West African countries. We do this by considering formal and informal imports coming from Benin into Nigeria. We subsequently analyze commodity expenditure shares and its importance to household budget of imported goods through the Seme border.
The Seme border connects Nigeria to Benin and serves as a major trade channel with other ECOWAS countries. Trade data from the International Monetary Fund show that Nigeria accounts for only about 5% of Benin’s recorded exports (i.e., formal trade). Most of this trade does not originate in Benin but consists of imported goods that transit through the port of Cotonou and then the Seme border. However, Benin’s informal exports to Nigeria are substantial. For instance, Golub (2012) uses a comparison between formal imports into Benin and Togo to make inferences about informal exports from Benin to Nigeria. The author compares formal imports into Benin and Togo of commodities subject to either an import ban or high import tariffs in Nigeria. 4 Table 1 shows that Benin’s imports of items such as cars, cotton cloth, frozen chicken, used clothes, palm oil, and rice are substantially higher than those of Togo. As Togo and Benin have similar economic structure, these high imports are not consumed in Benin, but exported through informal channels from Benin to Nigeria.
Comparison of Imports to Benin and Togo of Products Subject to Import Bans or High Import Tariffs in Nigeria (in Billions of CFA Francs).
Source. Golub (2012, p. 12).
Note. CFA = confirmatory factor analysis.
Until 2015, rice—the main food consumption item in Nigeria, and the main focus of this study—was among the items whose imports were banned. Despite the recent lifting of the ban, official rice traders still need to pay a 10% import duty plus a 60% levy on imports through a land border. Rice millers with a valid quota, who are the second type of official importers, pay a 10% import duty and a 20% levy. Treichel, Hoppe, Cadot, and Gourdon (2012, p. 3) note the impact of these trade policy measures by calculating that Nigerian consumers pay 77% more for the same products than consumers in other African countries that do not impose bans.
Trade policies aimed at preventing or restricting imports, together with issues such as informal payments to customs officers, explain why food and household items are frequently imported into Nigeria through informal channels, and women engage in it. Statistically, women constitute the majority (about 60%) of the Seme cross-border traders, including informal trading (Afrika & Ajumbo, 2012).
The household expenditure is examined next. Figure 1a and 1b present patterns of household consumption of both food and nonfood items in Nigeria. Figure 1a shows that the expenditure patterns of rural and urban households on food items are somewhat similar. Both households spend more on cereals and fruits, vegetables, and proteins than on alcohol and tobacco, meat and seafood, dairy products, and oil and fats. For nonfood item expenditures shown in Figure 1b, rural and urban dwellers also have similar expenditure patterns, with the most on household utilities such as rent, fuel, insurance, and water utilities. The bulk of the nonfood items that come through the border—such as clothing (especially secondhand) and household goods—constitute the next highest expenditure for rural households, whereas for the urban households, clothing and other services (such as information technology, insurance, and personal goods) are among their next highest expenditures.
(a) Share of food items in household expenditure (%) and (b) nonfood items in household expenditure (%).
Since Nigerian households spend a considerable share of their budget on items that flow through the border (e.g., cereals, clothing, fruits and vegetables), it is most likely that they will be affected by the condition of the border road infrastructure. This effect is examined in the subsequent empirical analysis.
Literature Review
Issues on cross-border trade—including its gender perspective—have received considerable attention in extant studies. For instance, while Lesser and Moisé-Leeman (2009) considered informal cross-border trade and trade facilitation reform in sub-Saharan Africa as a region, and Afrika and Ajumbo (2012) examined a regional perspective to informal cross-border trade in Africa, Blum (2014) carefully elaborated on the human security challenges of this form of trade using a case from the Nigeria–Benin republic border. These studies highlighted the effect of this form of trade on women within the subregion. Other recent authors like George, Ozoya, and Amoo (2017) further discuss the coping mechanisms of women in informal border trade along the same Seme border, while highlighting the main challenge faced by the women in this form of trade, including seizure of goods by custom officers which made women to quit this form of trade. Irrespective of the formal or informal nature of trade, border areas provide a wider market for both agricultural and nonagricultural products. Apart from direct exports and imports of these products, re-export and transit trade are prevalent in border areas (Golub, 2012).
Trade in the border areas of Nigeria is seen as having different effects on households depending on whether they are net consumers or net producers (Olayinka, 2013). For instance, UNCTAD (2018) observed that in such sectors that are female intensive, there are broad poverty and development ramifications such that women (particular for low-income and low-skilled women) can engage in economic activities to improve their livelihood. Informal trade can also have significant indirect impact on households through the prices of goods that pass through the borders to the final market. These goods are adjusted for the increased trade cost at the border such as transportation costs (as a result of bad roads), increased insurance costs, or the cost of preserving products, to mention a few. These increased prices of goods in the domestic market affect household consumption (see Blum, 2014; Olayinka, 2013).
Studies on the welfare effect of Nigeria’s intra-regional trade have only focused on the ECOWAS Common External Tariff (Balogun & Dauda, 2012; Olayinka, 2013; Urama, Nwosu, & Aneke, 2012). The present study goes further than Olayinka (2013), for example, by considering the impact of border road infrastructure, and focuses on gender-specific analysis to estimate the impact on household welfare. This study therefore fits in the broader literature on trade facilitation and household welfare, on one hand, and the literature on gender and poverty, on the other hand. In relation to gender and poverty, for instance, this study considers the extent to which the effect of higher prices of imported goods resulting from poor road infrastructure differs depending on the gender of the household head. Extant studies have pointed out that women are more vulnerable in terms of poor infrastructure (like road access) because of their involvement in trade, and due to their domestic roles and responsibilities that involve road transport (Amoatey, 2006; Masika & Baden, 1997).
The transmission mechanism through which the improvement of border roads affects domestic prices may be conjectured by considering the literature on how distance to the border affects household gains from trade policy. Nicita (2009) studied the price effect of tariff liberalization on household welfare. Among the important contributions of that study is that urban areas, and Mexican states that are closest to the U.S. border, are found to be large beneficiaries of the trade liberalization policy. The author notes that Mexican states that are farther away from the border benefit less from this policy because of the transportation cost. Similar studies that have linked distance to the border with household welfare include Marchand (2012), who analyzed tariff pass-through and distributional effects on Indian households.
This study acknowledges the policy by the Nigerian government to improve the local production of rice and reduce its importation. However, such trade policy by the government will increase tariffs or result in an outright ban on the importation of rice, which will raise the cost of trading such commodity informally—including cost of transportation, among others. These costs are then transmitted to the household through the selling price of such commodity, which is expected to increase as a result of the new government policy on such commodity. This assumption seems to be in line with the prediction of the Stolper–Samuelson theorem (see Nicita, 2009).
Methodology and Data
Method
Building on UNCTAD (2011) study on trade liberalization in Cape Verde and its effects on gender, this study performs an ex ante analysis using a three-step approach. The first step consists of a purely descriptive analysis of the income distribution in the selected states of Nigeria that are close to the Seme border. The second step uses nonparametric regressions to analyze the relationship between income, household food expenditure, and imported rice expenditure. The aim of the second step is to assess how changes in food commodity prices (for instance, those caused by reduced transport costs due to improvements in road infrastructure) would affect different types of households. Finally, the third step uses a simulation analysis to assess the potential welfare impact stemming from the improvement of the border road. This step is itself divided into two stages. Stage 1 clarifies how prices of imported rice—the commodity with the highest share of the average food budget of Nigerian households—would be affected by the improvement of border road infrastructure. Stage 2 then estimates the welfare effects of these simulated price changes.
Descriptive analysis of income distribution
The first step of the analysis describes the income distribution of all households (urban and rural) by gender. Log per capita expenditure of households is used as a proxy for household income. This variable is preferred because it provides an unbiased estimate of the income level of the household. The analysis uses kernel density plots to describe the distribution of the log per capita expenditure by the gender of the household head and the household location. This technique does not assume any underlying distribution for the variables and provides a clear output on the density distribution of the considered variables.
Analysis of the relationship between income and food expenditure
The second step generally analyzes the relationship between income and food expenditure, and income and imported rice expenditures (in particular) to understand how changes in food prices would affect different categories of household. The analysis is performed using nonparametric regressions of the share of food expenditure to total household expenditure, as well as the share of imported rice expenditure to total household expenditure on income. The nonparametric regressions are estimated using the local polynomial regression to fit the relationships of interest based on a flexible regression curve. This implies that separate fitted relationships are obtained at different values of the independent variable to enable predictions of the regression lines.
Unlike the parametric linear regression technique, the nonparametric regression allows for relaxing the linearity assumption. It also predicts estimators and inference procedures that are less dependent on functional form assumptions (Frolich, 2006; Yatchew, 1998). Yet, this technique allows for exploration of the forms of relationships between the variables of interest, which makes it useful for exploratory data analysis and for practical and policy-relevant analysis. Finally, nonparametric regressions permit, in some cases and to some extent, the inclusion of endogenous control variables (Frohlich, 2006).
Simulations and computation of welfare gains
The third step of the ex ante analytical method consists of two stages. Stage 1 simulates the effect of road improvements on the prices of imported rice. In our sample, imported rice is the commodity with the highest share of the average food budget of households, representing roughly 11% of average household food expenditure. Moreover, imported rice occupies third place in total average household expenditure, representing a share of over 6%. Consequently, local prices of imported rice will be directly affected by a policy aimed at improving border roads. Stage 2 uses the simulated changes in the price of imported rice to compute associated household welfare changes.
In ex ante studies, simulation analysis is an important tool that predicts scenarios using statistical data. It is helpful in assessing the effects of a change in government policies on the variables of interest. The simulation-based approach can also be used to evaluate the effects of exogenous changes in conditions, such as transport cost to the border resulting from improvements in road infrastructure. Simulation analysis thus allows for generating different counterfactual scenarios.
Stage 1: Simulating the effects of road improvements on the price of imported rice
Internal transport costs affect local prices of imported goods. This assumption has been corroborated by several studies such as that by Boysen (2009) that studied border price shocks and spatial price variation, and its impacts on poverty in Uganda, and that by Nicita (2009) which studied the price effect of liberalization of tariff on household welfare for Mexico.The idea is formalized in the law of one price, which can be expressed as follows:
where pij, the local price of good i in the specific household location j (a village or city within Nigeria where the household is located), depends on the international price
The price of good i at the Seme border,
The transportation costs from the Seme border to the location j (
Within this framework, internal transportation costs γ
ij
are assumed to vary regionally depending on the state of road infrastructure and the distances being covered. This implies that local prices of imported commodities (
The elasticity of the local prices pij with respect to internal transportation costs γ ij is thus given by
where
where
We apply this methodology to the prices of imported rice. Two reasons motivate that choice. First, imported rice is the commodity with the highest share of the average food budget of households and the third highest share in total household budgets. Second, as imported rice is one of the main cross-border traded products, the local price of imported rice will be directly affected by improvements in border road infrastructure. These two features make imported rice a suitable commodity for the simulation of the welfare effects of the border road improvement policy.
Stage 2: Assessing the welfare effects of the simulated commodityprice changes
The change in the price of imported rice induced by a change in transportation costs as a result of improvements in road infrastructure is then used to compute the welfare effect for each household. We compute the percentage gain in household welfare as follows:
where expenditure_ratio corresponds to a household’s imported rice expenditure as a fraction of total household expenditure,
Data Description
Different data sources are used for this study. Household data, including location and characteristics, are sourced from the second wave of the World Bank’s General Household Survey (postharvest) conducted in 2012-2013. The survey provides information on household characteristics such as expenditure, income, and gender of household head of 4,581 households in Nigeria. The second wave of the survey is preferred because, as at the time of this study, it contains more recent information about the sampled households. Table 2 describes the number of households across states and locations. Only the states in the South-West Region of Nigeria are considered based on available data (see Figure 2 and Figure A1 in the appendix).
Sample Distribution (Post-Harvest) of Households That Participated in the General Household Survey.
Source. Author’s elaboration.
Note. Nigeria is divided into six geopolitical zones: South-West, South-South, South-East, North-West, North-East, and North-Central. Within those zones, there are 36 states including the Federal Capital Territory—Abuja.
Locations from which household data were gathered.
Transportation costs from the Seme border to these household locations are sourced from a trans-state transport agency in Lagos State, Nigeria. The agency is an association of transport operators that travel the routes of interest. The transportation cost per kilogram was then computed using the freight capacity of the standard vehicle of the operators. We approximate the price of imported rice at the Seme border (
International Rice Prices and Import Tariffs in Nigeria.
Source. World Bank, Commodity Price Database; and Nigeria Customs Service.
Results Presentation
Descriptive Analysis of Income Distribution
Kernel density plots were used to describe the distribution of the weekly log per capita expenditures by the gender of the household head and the household location. Figure 3 shows that rural household density is shifted to the left compared to urban household density, which indicates that per capita household income is higher in urban than rural areas. A Kolmogorov–Smirnov two-sample test indicates that this difference is statistically significant at the 1% level. This pattern is consistent with findings from other countries like Cape Verde (UNCTAD, 2011) and Tanzania (Ilomo, 2015).
Distribution of income by household location.
The distribution of per capita expenditure by gender of the household head is further considered to verify whether there is a gender bias in the income distribution. Figure 4 reveals that the density of female-headed households is slightly shifted to the left compared to male-headed households. This means that female-headed households have lower per capita income and thus tend to be poorer than their male counterparts. These findings support earlier results of the national demographic survey showing that women are poorer than men in terms of their earning capacity (Fapohunda, 2012; Makama, 2013; National Bureau of Statistics, 2013). Note however that the difference in log per capita expenditures between female- and male-headed households are (just barely) not significant at the 10% level. The latter might be due to the relatively small size of our sample.
Distribution of income by gender of household head.
To conclude the overview of income in the sampled location, Table 4 presents average weekly per capita household expenditures by location and gender. The average per capita expenditures shown in the table further confirm the results in Figures 3 and 4. Urban households, for instance, have higher average per capita expenditures than their rural counterparts, and female-headed households have lower per capita expenditures than their male-headed counterparts. Interestingly, Table 4 reveals a discrepancy when comparing female- and male-headed households by household location. For example, while female-headed urban households have a lower average per capita expenditures than male-headed urban households, female-headed rural households have (slightly) higher average per capita expenditures than male-headed rural households.
Average Weekly per Capita Expenditure of Households.
Source. Author’s calculations.
Note. The values are in the local currency unit (naira). For the period covered by the data in the table, the exchange rate was 156.81 naira per U.S. dollar.
Relationship Between Income, Food Expenditure, and Imported Rice Expenditure
The next analysis shows how different households would be affected by changes in the price of food in general, and imported rice in particular.
Income and food expenditures
In most Nigerian households, food expenditure represents an important share of total household expenditure. The nonparametric regressions of the share of food expenditure on the log of household per capita expenditure were estimated to explore the relative importance of food in the budget of different households UNCTAD (2011). Figure 5 displays the fitted regression lines for female- and male-headed households separately, with each point on the regression line reflecting the average food expenditure ratio for a given level of income.
Share of household food expenditure and income.
The lower panel of Figure 5 displays the regression lines for the entire South-West region of Nigeria by gender. Poorer households with low log per capita expenditures spend a large part (more than 60%) of their household budget on food purchase. The importance of food expenditure in the household budget then constantly declines with rising income. These results are consistent with economic theory and illustrate Engel’s law, which says that the proportion of income spent on food decreases when income rises, even if actual expenditure on food might rise. We also find some evidence of gender differences: except for very poor households, female-headed households seem to spend more on food than their male counterparts with similar per capita household income. These results are in line with findings for other countries (UNCTAD, 2011).
The upper panel of Figure 5 displays the fitted regression lines by gender separately for urban (left panel) and rural (right panel) households. The same overall patterns as already discussed for the entire South-West region of Nigeria can be found here. However, one striking difference between urban and rural regions is that food expenditure shares of female- and male-headed households are considerably larger in rural areas than in urban areas.
In terms of policy implications, Figure 5 indicates that a policy that reduces food prices in the local market has a pro-poor bias for both female- and male-headed households, in urban as well as rural areas, and in the entire South-West region of Nigeria. Moreover, female-headed households would generally benefit more from lower food prices than their male counterparts. Thus, in a hypothetical world where all food would be imported into Nigeria, a policy that improves border roads and thereby lowers transportation costs, and hence food prices, would benefit poor households and female-headed households more than rich and male-headed households. However, not all food is imported into Nigeria, so we are not in a position to judge how a border road improvement policy would affect different households, as the consumption patterns of imported food might differ from the general food expenditure pattern. The next section, therefore, looks at imported rice—a particular food commodity that has the highest expenditure share in household food budgets.
Income and imported rice expenditures
Figure 6 shows the regression lines for the entire sampled region for female- and male-headed households. Poor households spend roughly 15% of their household budget on imported rice. Overall, the share of expenditure spent on imported rice tends to decrease with higher per capita income, again confirming Engel’s law. Note that the regression line for female- and male-headed households overlaps twice, indicating that both the poor and rich female-headed households spend more than male-headed households on imported rice.
Share of household imported rice expenditure and household income—entire region.
Figure 7 shows the regression lines for the rural subsample and Figure 8 shows the results for the urban subsample. While the general tendency in both subsamples is the same—that is, poorer households spend a larger share of their income on imported rice than richer households—a striking difference emerges when considering the gender of the household head. In rural areas, female-headed households spend more on imported rice, no matter their per capita income. In urban areas, the poor and rich female-headed households spend a larger share of their total income on imported rice than their male counterparts.
Share of household imported rice expenditure and household income—urban areas.
Share of household imported rice expenditure and household income—rural areas.
Figures 6–8 thus show that a policy that improves border roads will affect households differently. First, poorer households will benefit more from such a policy because they spend a larger share of their budget on imported rice. Second, poor as well as rich female-headed households will generally profit more than their male counterparts. Finally, all rural female-headed households will in general benefit more than their male counterparts. The next section will therefore simulate the effects of border road improvements on the price of imported rice. The welfare gains will subsequently be computed.
Simulations and Computations of the Welfare Effects From the Construction of Border Road Infrastructure
As mentioned in section “Method,” we first simulate the effect of an improvement in the road infrastructure on the price of imported rice and then calculate the effect of this price change on household welfare.
Effect of road improvements on the price of rice
As stated in section “Simulations and computation of welfare gains,” three different scenarios of changes in transportation costs, which are reductions by 10%, 20%, and 30%, were considered. The elasticity of the price of imported rice with respect to transportation costs is calculated as the share of transportation costs in the local price of rice. To calculate this elasticity, we need the costs to transport rice to each region in Nigeria and the local price of rice, defined as the price at the Seme border plus the transportation cost (see Equation 2). The price of rice at the Seme border is measured as the international price of rice plus import tariffs (see Table 4), and transportation costs are calculated using the information provided by the previously mentioned trans-state transport agency in Lagos State, Nigeria. The averages of the simulated changes in prices by the state are presented in Table 5.
Average Change in the Price of Rice After a Reduction in Transportation Costs (%).
Source. Author’s calculations.
Welfare effects
Once the changes in local rice prices are obtained, the final step is to calculate the welfare effects by applying Equation 4. For each household, the budget share of rice is multiplied by the change in price that corresponds to the location of the household. Thus, the change in welfare for each household depends on how far it is located from the Seme border (the farther away from the household, the higher the welfare effect), and on the budget share of rice of the household (the higher the budget share, the higher the welfare effect).
Nonparametric regressions are used to illustrate these changes in welfare by total expenditure level. Figure 9 shows the welfare effect for all households and its disaggregation by region (urban and rural) after a 20% reduction in transportation costs. The shapes of the curves for the other two simulations (a 10% and 30% reduction in transportation costs) are identical and are presented in Figures A2-A5 in the appendix.
Welfare effect on households of a 20% reduction in transportation costs, by area.
It is evident from the figures that rural households experience the highest change in welfare. Also, poor households in both urban and rural areas benefit the most from the reduction in the price of imported rice. An exception concerns the very poor and can be explained by the fact that these households did not report any consumption of imported rice (see Figures 7 and 8).
When considering the gender of the household head, the analysis produces ambiguous results. Figure 10 shows that the welfare change curves cross each other several times. Nevertheless, we can observe that among the poorest female-headed households are those that benefit more than their male counterparts from the reduction in the price of rice.
Welfare effect on households of a 20% reduction in transportation costs, by gender.
It is important to point out that this analysis includes both the households that consume imported rice and those that do not. The analysis does not consider behavioral changes that would allow households that do not consume imported rice to start consuming it after a decrease in price. Therefore, in the analysis, only the households that reported any consumption of imported rice are shown as benefiting from lower prices.
The simulation results lead to a conclusion that a policy that aims to improve border roads, and thereby lower transportation costs and subsequently the price of imported rice, will be more beneficial to rural than urban households. Moreover, such a policy is likely to produce larger welfare gains for poorer households than richer households and will be more beneficial for the poorest female-headed households than for their male counterparts. Note, however, that there are two major caveats of the simulation analysis. First, as already mentioned, we do not consider any behavioral changes induced by the reduction in the price of imported rice. Second, we only consider one (although major) commodity (imported rice) and do not assess the effects of lower transportation costs on other imported commodities. Despite these limitations, the results have rich policy implications.
Discussion
Our major finding from the analysis is that policies that are geared toward the improvement of border road infrastructure are going to affect households through transportation cost impact on domestic prices of goods or income effect from improved productive activities from better road access. Although the income effect is not analyzed, but assumed, the simulation from the price effect that affects the changes in household consumption of imported rice stemming from an improvement in border roads and the subsequent reduction in transportation costs has important implication for policy.
First, rural households are the most affected by a change in the prices of commodity from the Seme border as a result of changes in the prices of input in delivering such commodity to the market. This finding reveals an asymmetric pattern in the vulnerability of households in this region as identified in other studies (Ajefu & Abiona, 2019). This study further disaggregates this impact by income status; it is evident that poor households are also more hurt by the changes in the prices of this commodity. Evidently, this impact is common for those households in both rural and urban areas. This finding indicates that policies that affect the changes in the prices of commodities that are mostly favored in informal trade have a severe impact on the poor than the wealthy households, who may have more economic resources to cushion those shocks from changes in prices.
Although there have been recent moves by the Nigerian government to restrict the import of rice into the country, two implications from this study stand out: first, although this study considers rice import for its analysis, there are other important commodities that are favored by smugglers and which are informally traded using the road transportation system. Such commodities will also have a welfare effect on the households following a similar pattern as that displayed in this study. This is because the changes in the road transport cost due to the poor state of the road do not apply to only rice as used in this study, but to other commodities that are transported through the road system. Second, since other household commodities frequently used by women, such as cooking oil, tomato paste, among others, are also traded informally through the Nigerian–Seme border, the implication of changes in the state of the road infrastructure cannot be overlooked. However, this issue does not imply that the present study advocates for more informal trade. It only presents statistical facts about the conditions that households are confronted with in situations when social goods are dilapidated and households’ goods require these means to get to the market.
Conclusion
Using an ex ante analytical approach, this study aimed to quantify the welfare effects of the completion of the Seme border project, with a special focus on its differential impact on households, across household head, gender, and household location. The income distribution in the South-West region of Nigeria is first described, and separately for urban and rural households. We then analyzed the relationship between the level of livelihood of households and their food expenditure ratio, and imported rice expenditure ratio. Finally, the welfare effects of the completion of the border road project are simulated by focusing on the impact of a policy-induced change in prices of imported rice.
Results indicate that the completion of the border road infrastructure would be more beneficial for rural households than urban households. Moreover, completion would likely produce larger welfare gains for poorer households than richer households and would at the same time be more beneficial for the poorest female-headed households than the male-headed counterparts. Thus, the study shows that the welfare impact of border road improvements is generally positive, but varies across household location and gender.
Due to the lack of data, this study did not consider the income effects of the completion of the border road project. However, an analysis of the latter would be worthwhile, especially from a gender perspective, as women constitute the main bulk of traders operating in the Seme border. It would also be useful for future studies to extend this analysis to the road access of other economically active borders of Nigeria like the Ikom–Mfum border.
Footnotes
Appendix
Acknowledgements
The author would like to thank David Zavaleta, of the Universidad Católica Boliviana, Bolivia, and Caspar Sauter of the UNCTAD Virtual Institute for their guidance and helpful discussions throughout this project. He is also grateful to Elizabeth Casabianca, of the Università Politecnica delle Marche, Italy, for her contribution during the project. Financial support from the government of Finland is also gratefully acknowledged. The author is also thankful for the comments from the two anonymous reviewers.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This research is funded by the UNCTAD Virtual Institute (Supported by the Goverment of Finland) - Contract Number : 50038.
