Examination of Recession as a Consequential Effect of Poverty in Nigeria

Examination of Recession as a Consequential Effect of Poverty in Nigeria

INTRODUCTION

BACKGROUND OF THE STUDY

In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. Shiskin, (1974). It is defined as a negative economic growth for two consecutive quarters. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation. A recession has many attributes that can occur simultaneously and includes declines in component measures of economic activity (GDP) such as consumption, investment, government spending, and net export activity. These summary measures reflect underlying drivers such as employment levels and skills, household savings rates, corporate investment decisions, interest rates, demographics, and government policies. Economist Richard C. Koo wrote that under ideal conditions, a country’s economy should have the household sector as net savers and the corporate sector as net borrowers, with the government budget nearly balanced and net exports near zero.^[9][10] When these relationships become imbalanced, recession can develop within the country or create pressure for recession in another country. Policy responses are often designed to drive the economy back towards this ideal state of balance. A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic depression, although some argue that their causes and cures can be different. As an informal shorthand, economists sometimes refer to different recession shapes, such as V-shaped, U-shaped, L-shaped and W-shaped recessions. The study proffers an examination of recession as a consequential effect of poverty in Nigeria.

STATEMENT OF THE PROBLEM

During recession Unemployment is particularly high during a recession. Many economists working within the neoclassical paradigm argue that there is a natural rate of unemployment which, when subtracted from the actual rate of unemployment, can be used to calculate the negative GDP gap during a recession. In other words, unemployment never reaches 0 percent, and thus is not a negative indicator of the health of an economy unless above the “natural rate,” in which case it corresponds directly to a loss in gross domestic product, or GDP. The full impact of a recession on employment may not be felt for several quarters. Research in Britain shows that low-skilled, low-educated workers and the young are most vulnerable to unemploymentin a downturn. After recessions in Britain in the 1980s and 1990s, it took five years for unemployment to fall back to its original levels. Many companies often expect employment discrimination claims to rise during a recession. Productivity tends to fall in the early stages of a recession, then rises again as weaker firms close. The variation in profitability between firms rises sharply. Recessions have also provided opportunities for anti-competitive mergers, with a negative impact on the wider economy: the suspension of competition policy in the United States in the 1930s may have extended the Great Depression. The living standards of people dependent on wages and salaries are not more affected by recessions than those who rely on fixed incomes or welfare benefits. The loss of a job is known to have a negative impact on the stability of families, and individuals’ health and well-being. Fixed income benefits receive small cuts which make it tougher to survive. The problem confronting the study is to proffer an examination of recession as a consequential effect of poverty in Nigeria.

OBJECTIVES OF THE STUDY

The Main Objective of the study is to proffer an examination of recession as a consequential effect of poverty in Nigeria. The specific objectives include:

1. To identify the relationship between economic recession and poverty reduction in Nigeria.
2. To study how economic recession can be averted in Nigeria through agriculture.
3. To understand the prevalence of economic recession in Nigeria.
4. To investigate the causes of economic recession in Nigeria.

RESEARCH QUESTIONS

i.        What is the relationship between economic recession and the poverty reduction in Nigeria?

ii.        How can economic recession be averted in Nigeria through agriculture?

iii.        What is the prevalence of economic recession in Nigeria?

iv.        What are the causes of economic recession in Nigeria?

STATEMENT OF THE HYPOTHESIS

Ho₁: There is no significant relationship between economic recession and poverty reduction in Nigeria.

SIGNIFICANCE OF THE STUDY

The study proffers an examination of recession as a consequential effect of poverty in Nigeria. It provides relevant data for the effective formulation and implementation of policies which will further stimulate the economy to economic growth and development.

LIMITATION OF THE STUDY

The study was confronted with logistics and geographical factors.

DEFINITION OF TERMS

RECESSION DEFINED

Recession is a business cycle contraction when there is a general decline in economic activity. Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. Shiskin, Julius (1974). It is defined as a negative economic growth for two consecutive quarters. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock).

INFLATION DEFINED

Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money. It is a loss of real value in the medium of exchange and unit of account within the economy.

MONETARY POLICY DEFINED

Monetary policy is the process of controlling the supply, availability, cost of money or rate of interest. Monetary policy is usually used to attain a set of objectives oriented towards the growth and stability of the economy.

EMPLOYMENT RATE DEFINED

This is the percentage of the labor force that is employed and also constitute one of the economic indicators that economists examine to help understand the state of the economy.

UNEMPLOYMENT RATE DEFINED

This constitutes the number of people actively looking for a job as a percentage of the labour force. The unemployment rate is defined as the percentage of unemployed workers in the total labor force. Workers are considered unemployed if they currently do not work, despite the fact that they are able and willing to do so.

TOTAL LABOUR FORCE DEFINED

This consists of all employed and unemployed people within an economy.