Economic Development in Nigeria

Economic Development in Nigeria:
A Demographic Perspective
Committee on African Studies

Harvard Africa Seminar, April 13, 2010
David E. Bloom and Salal Humair

Department of Global Health and Population, HSPH
Nigeria’s economy has stagnated:
3,500
No growth in income per capita
3,000
2,500
GDP per capita
2,000
1,500
1,000
500
0
1980 1990 2000 2006
PPP, constant 2005 intl $ Exchange-rate, constant 2000 US $

Source: World Development Indicators 2008
Indonesia and Pakistan have seen economic
growth
3,500
GDP per capita, PPP (constant 2005 int'l $)
3,000
2,500
2,000 Nigeria
Indonesia
1,500 Pakistan
1,000
500
0
1980 1990 2000 2006
Nigeria’s economy
GDP per capita, PPP (constant 2005 int'l $) compared with world regions
9,000
8,000
7,000
6,000
Nigeria
5,000
East Asia & Pacific
4,000 Sub-Saharan Africa
World
3,000
2,000
1,000
0
1980 1990 2000 2006

Comparing economic growth rates
average annual growth
rate of GDP/capita
(PPP), 1980 - 2006
Nigeria 0.0%
Indonesia 3.6%
Pakistan 2.5%
East Asia & Pacific 6.6%
Sub-Saharan Africa 0.0%
World 1.6%
Nigeria’s fertility rate has started to fall
7
6
Children per woman
2
1960 1970 1980 1990 2000 2010
Source: UN, World Population Prospects, 2008

The infant mortality rate has fallen,
but not steadily
200
Deaths per 1,000 live births
150
100
50
0
1960 1970 1980 1990 2000 2010

Life expectancy has risen,
but not steadily
65
Life expectancy at birth, years
60
55
50
45
40
35
1960 1970 1980 1990 2000 2010

Crude birth and death rates are falling
50
40
Per 1,000 population
30
20
10
0
1960 1970 1980 1990 2000 2010
Crude birth rate Crude death rate

Population growth has been rapid
3.5
Population growth rate (%)
3.0
2.5
2.0
1.5
1.0
1960 1970 1980 1990 2000 2010

The ratio of working-age to non-working-age
people has been pretty steady
2.5
non-working-age population
Ratio of working-age to
2.0
1.5
1.0
1960 1970 1980 1990 2000 2010
Changing Age Structure, 1950-2010:
A 3-dimensional view
2010
30
2000
25
Population
1990
(millions)
20
1980
15
1970
10
5 1960
0 1950
4
4
64
4
84
0+
14
44
94
-2
-7
-3
-5
0-
10
-
-
20
30
50
70
10
40
60
80
90
Age group
Source: UN, World Population Prospects 2008
Average annual growth rate of
GDP per capita, 1975-2005
7%
East Asian "miracle"
6%
5%
4%
3%
Sub-Saharan African
debacle
2%
1%
0%
East Asia & Pacific Sub-Saharan Africa
-1%

Changing
2.50
age structure, 1960-2005
2.25
2.00
1.75
1.50
1.25
1.00
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
East Asia & Pacific Sub-Saharan Africa
Source: UN, World Population Prospects 2008

The demographic transition
Population growth rate
Birth rate
Death rate
time
Population age structure is a robust and
powerful predictor of economic growth
Demographics Income
One third (about 2 percentage points) of the growth of

income per capita in East Asia during 1965-90 is attributable
to the independent influence of changes in age structure.
Nigeria’s population is set to soar
300
250
200
Population
(millions)
150
100
50
0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
The fertility rate is expected to continue falling
7
6
Children per woman
2
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
The infant mortality rate is projected to continue
falling
200
Deaths per 1,000 live births
150
100
50
0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Life expectancy will continue to rise
65
60
Life expectancy at birth, years
55
50
45
40
35
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Crude birth and death rates will continue to fall
50
40
Per 1,000 population
30
20
10
0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Crude birth rate Crude death rate

Population growth rate will decline substantially
3.5
Population growth rate (%)
3.0
2.5
2.0
1.5
1.0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

The ratio of working-age to non-working-age
people is set to increase dramatically
2.5
2.0
1.5
1.0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Growth of the working-age to non-working-age ratio,
1960-2050 (under 3 UN fertility scenarios)
2.5
2.0
1.5
1.0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Low Medium High
Comparing the growth rates of the
working-age and non-working-age
population
Annual average growth rate
1970 - 2010 2010 - 2050
Dependent Working-age Dependent Working-age
population population population population
Nigeria 2.6% 2.7% 0.7% 2.0%
Indonesia 0.9% 2.3% 0.8% 0.4%
Pakistan 2.5% 3.0% 1.0% 1.8%
East Asia 0.5% 1.9% 0.9% -0.1%
Sub-Saharan Africa 2.6% 2.8% 1.1% 2.3%
World 1.1% 1.9% 0.8% 0.7%

A longer 3-dimensional view of Nigeria’s trajectory
2050
2025
Population (millions)
30
25
2000
20
15
1975
10
5
0 1950
Age group
1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

Nigeria compared with East Asia
2.5
2.0
1.5
1.0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
East Asia Nigeria low Nigeria medium Nigeria high
Nigeria compared with Indonesia and Pakistan
2.5
2.0
1.5
1.0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Nigeria Indonesia Pakistan
Reaping the demographic dividend is not
automatic, and may not be permanent
• Demography is not destiny – it just creates potential
• Need to catalyze demographic transition
• Need to accelerate demographic transition – esp. fertility decline
• Need compatible policies in other areas
– education
– health
– labor market
– trade
– governance
– macroeconomic management
• March of the “silver hair” generation
• Inequality within Nigeria
The elderly will make up a larger share of the
10.0
population
7.5
Percent
5.0
2.5
0.0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
% 60+ % 80+
Will demographic
heterogeneity
induce economic
inequality and
political instability?
Ratio, working-age to non-working-age population,
by state
Source: Population and Housing Census, National Population Commission, Nigeria, 1991 and 2006
Take-home messages so far
• Demography can matter for the pace of
economic development.
• It can matter a lot.
• There is potentially a sizeable demographic
dividend in Nigeria’s future.
Estimates of the potential size and impact of
Nigeria’s demographic dividend
• The 2030 economy can be 3 times larger than

in 2010, instead of 2 times.
• The average Nigerian can enjoy an additional
30% income in 2030.
• Over 30 million additional people can be lifted
out of poverty
Source: Bloom et al. 2010. Nigeria’s demographic dividend. Background paper for the NGN project
Central questions
• How do we know how much demographic
dividend Nigeria can expect?
• What challenges and opportunities does
Nigeria face in trying to collect that dividend?
• What are some recommendations for the
Nigerian government and civil society?
One major challenge in estimating the
demographic dividend
• Lack of data
• Dubious data quality
• Access to data difficult for academics outside
Nigeria
• Few peer reviewed studies on Nigeria
compared to similar sized countries like
Bangladesh or Indonesia
Source: Holly Reed, 2010. Capitalizing on Nigeria’s Demographic Dividend. Background paper for the NGN project
Demographic data is also a big political issue
Source: http://news.bbc.co.uk/2/hi/africa/4512240.stm
How much demographic dividend can Nigeria
expect?
• Assembled panel data for 1965-2005 from

• World Development Indicators, Penn World Tables,
Barro and Lee, Freedom House
• Estimated cross-country growth models using
demographic and other variables
• Geographical (tropical location, landlockedness)
• Human development (education, health)
• Institutional quality (ICRG, SW, Trade openness)
• Projected economic growth to 2030
Potential impact of demographic dividend on per
capita income
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
2005 2010 2015 2020 2025 2030 2035
Business-as-usual With DD and increased LE
Potential impact on per capita income with
institutional and health improvements
Year GDPpC GDPpC with GDPpC

"business- DD & added improved IQ
as-usual" LE & LE
2010 $2,070 $2,070 $2,070

2015 $2,521 $2,653 $2,664
2020 $3,070 $3,435 $3,461
2025 $3,738 $4,486 $4,535
2030 $4,553 $5,882 $5,966
Potential impact of the demographic dividend on
poverty
Year # lifted out of # lifted out of

poverty with poverty with
DD and improved IQ
added LE & LE
2010 - -

2020 5.8 million 5.8 million

2030 31.8 million 34 million
What are the challenges and opportunities in
collecting the demographic dividend?
• Jobs creation
• Education
• Health – infant/child mortality, maternal health,
unmet need for family planning
Nigeria will need lots of jobs
Year WA pop Unempl- Jobs needed Between Jobs to be

oyment years added
2010 85,525,401 20% 52,358,719
2015 97,731,223 15% 63,570,579 2010-15 11,211,860
2020 111,088,850 10% 76,509,768 2015-20 12,939,189
2025 125,325,513 8% 88,233,036 2020-25 11,723,268
2030 140,036,212 7% 99,661,452 2025-30 11,428,415
Source: Author calculations.

But jobs will also need to be productive:
Nigeria’s economic lifecycle - individual
Source: Mason et al. 2010. Population and economic progress in Nigeria. Background paper for the NGN project
Education will be key in making jobs productive:
economic lifecycle - aggregate
Needs of Labor
children surplus
And results can be achieved with little: Nigeria’s
current education expenditures
Nigeria’s education and health spending
Actual ($) % of
spending
Education, Public 142 7.33
Education, Private 922 47.63

Health, public 39 2.01
Health, private 833 43.04

Total 1,936 100
Total Public 181 9.33
Total Private 1,755 90.67
Per capita spending (2004 $s)
Source: Mason et al. 2010. Population and economic progress in Nigeria. Background paper for the NGN project.
Nigeria’s human capital investment compared to
other countries
Source: Nigeria: The Next GenerationTask Force secretariat, 2010.

Low health spending reflected in low level of
maternal health
Source: Nigeria 2008 demographic and health survey: key findings.

Low health spending reflected in high levels of
child mortality

Low health spending reflected in low level of
children vaccination coverage

Low health spending reflected in high level of
unmet need for family planning
Source: Unpublished background memo for the NGN project.

Unmet need in the context of current fertility

Nigeria’s untapped human capital: the diaspora
90,000
82,583
80,000
70,000 67,232
60,000
50,000
Persons
40,000
35,343
30,000
20,000
8,800
10,000
1,500
0
1961 to 1970 1971 to 1980 1981 to 1990 1991 to 2000 2001 to 2008
Number of persons obtaining legal permanent residents who were born in Nigeria, fiscal years 1961-2008
Source: US Department of Homeland Security, Office of Immigration Statistics, 2008 Yearbook of Immigration Statistics.
The Nigerian US diaspora is well-educated
80
73.6
70
Percent among population 25 years old and over
60.8 60.6
60
54.0
49.6 48.9
50
40.3
40
34.9
30 27.8 28.0
25.9
24.0 24.3
20.5
19.0
20
12.2
10.0 9.4
10
0
Natives Nigeria Bangladesh India Indonesia Pakistan Brazil South Africa All other
foreign-born
Graduate or professional degree Bachelor's degree or higher
Source: Nigerian-born Population in the United States, unpublished background memo, NGN project
And the diaspora is a significant resource
(US$ million) 2001 2002 2003 2004 2005 2006 2007 2008
Inward remittance flows 1,167 1,209 1,063 2,273 3,329 5,435 9,221 9,980
Outward remittance flows 1 1 12 21 18 18 103 103
Source: The World Bank. Migration remittances factbook 2008. Updated Nigeria data from personal communication.
Summary of challenges and opportunities in
collecting the demographic dividend
• Jobs
• The number needed …
• Low productivity …
• Education:
• Very low public investment … but quick gains …
• Low quality schooling …
• Health
• Very low public investment … but quick gains …
• Lower fertility can lessen pressure on services …
Other challenges and opportunities we have not
touched on
• Institutional improvements, governance

• Infrastructure improvements
• Politics, conflict and youth exploitation
• Youth attitudes
• Regional disparities and cultural differences
• Macro-economics and international relations
Take home messages
• Nigeria’s demographic dividend opportunity is

very significant - and can be crucial to Nigeria’s
2020 vision
• The demographic dividend could have a major
impact on poverty in Nigeria
• Nigeria has several challenges to realizing the
dividend, but many of these are also opportunities
for quick gains
Reaping the demographic dividend:
cautionary points regarding Nigeria
• Not all of the general points about the factors needed to realize
the demographic dividend necessarily apply to Nigeria.
• In particular:
– The development of well-functioning financial markets, as important
as it is, may not be as high a priority for Nigeria as elsewhere.
– Trade policy is important, but it may be more important to focus on
diversification of the economy away from dependence on oil exports.
– Minimum wage laws and unions may affect only a small portion of
Nigeria’s labor market.
Backup slides
Estimation results
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Column Column Column Column Column
Geo, Geo, (4) with Column (5) with (5) with (5) with (5) with
Geographical human human ICRG (4) with SW SW Trd Trd
Geographical and human and dem and dem Score ICRG Openness Openness Openness Openness
VARIABLES only (OLS) only (OLS) only (OLS) only (IV) (OLS) Score (IV) (OLS) (IV) (OLS) (IV)
Difference working-age and 2.083*** 1.972*** 1.896*** 1.923*** 1.907*** 1.951*** 1.888*** 1.887***
total population growth (0.602) (0.624) (0.684) (0.620) (0.682) (0.618) (0.674) (0.619)
Trade openness 0.00772** 0.00772**
(0.00313) (0.00310)
Sachs Warner openness 0.389 0.391
(0.479) (0.469)
ICRG score for quality of institutions 0.108** 0.107** 0.105** 0.104** 0.104** 0.104**
(0.0445) (0.0419) (0.0466) (0.0441) (0.0446) (0.0420)
Log average years of secondary -0.172 -0.429 -0.415 -0.447 -0.450 -0.454 -0.459 -0.450 -0.450
schooling in base year (0.325) (0.334) (0.332) (0.333) (0.332) (0.328) (0.326) (0.332) (0.331)
Log life expectancy in base year 8.606*** 5.434** 5.603*** 5.357** 5.317*** 5.146** 5.079** 5.269** 5.271***
(1.926) (2.161) (2.044) (2.154) (1.957) (2.283) (2.081) (2.150) (1.958)
Tropical location -0.699* -0.407 -0.648* -0.635* -0.477 -0.481 -0.533 -0.539 -0.731* -0.731*
(0.363) (0.349) (0.344) (0.343) (0.368) (0.361) (0.390) (0.380) (0.392) (0.382)
Landlocked 0.332 0.805** 1.008*** 0.998*** 0.725** 0.729** 0.699* 0.705** 0.734** 0.734**
(0.367) (0.386) (0.382) (0.384) (0.358) (0.358) (0.358) (0.358) (0.357) (0.357)
Log working-age population to 14.20*** 12.94*** 16.68*** 16.48*** 12.89*** 12.95*** 12.50*** 12.59*** 12.91*** 12.91***
total population in base year (2.420) (2.259) (2.650) (2.597) (3.437) (3.118) (3.287) (3.018) (3.403) (3.084)
Log real GDP per capita in base year -0.902*** -1.844*** -1.617*** -1.630*** -1.828*** -1.825*** -1.852*** -1.846*** -1.897*** -1.897***
(0.280) (0.337) (0.350) (0.342) (0.369) (0.354) (0.370) (0.356) (0.368) (0.353)
Constant 18.85*** -9.351 3.388 -0.490 0.853 -2.463 1.618 -1.619 1.564 -2.027
(3.441) (8.028) (8.945) (8.396) (9.759) (8.752) (10.27) (9.260) (9.762) (8.766)
Observations 610 610 610 610 610 610 610 610 610 610
R-squared 0.146 0.198 0.253 0.253 0.274 0.274 0.276 0.276 0.282 0.282
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1

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Economic Development in Nigeria:

Committee on African Studies

David E. Bloom and Salal Humair

PPP, constant 2005 intl $ Exchange-rate, constant 2000 US $

Source: World Development Indicators 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Crude birth rate Crude death rate

Source: UN, World Population Prospects, 2008

Source: World Development Indicators 2008

Source: UN, World Population Prospects 2008

Population growth rate

One third (about 2 percentage points) of the growth of

Crude birth rate Crude death rate

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

Source: UN, World Population Prospects, 2008

• The 2030 economy can be 3 times larger than

• Assembled panel data for 1965-2005 from

Business-as-usual With DD and increased LE

Year GDPpC GDPpC with GDPpC

2010 $2,070 $2,070 $2,070

Year # lifted out of # lifted out of

Year WA pop Unempl- Jobs needed Between Jobs to be

Source: Author calculations.

Source: Nigeria: The Next GenerationTask Force secretariat, 2010.

Source: Nigeria 2008 demographic and health survey: key findings.

Source: Nigeria 2008 demographic and health survey: key findings.

Source: Nigeria 2008 demographic and health survey: key findings.

Source: Unpublished background memo for the NGN project.

Source: Nigeria 2008 demographic and health survey: key findings.

Graduate or professional degree Bachelor's degree or higher

• Institutional improvements, governance

• Nigeria’s demographic dividend opportunity is

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