Inequality of Opportunity, Economic Inequality and Poverty in Ghana

Abstract

This thesis examines the trend and patterns of inequality of opportunity for consumption expenditure and its association with poverty in Ghana. Using the 1998/99, 2005/06 and 2012/13 rounds of the nationally representative Ghana Living Standard Survey, the study first provides the parametric and non-parametric lower-bound estimates of inequality of opportunity for consumption expenditure over time, across sex and area of residence. The study uses five circumstance variables, namely, mother’s education, father’s education, parents’ occupation, region of birth and ethnicity. The findings show that the parametric (non-parametric) estimate of inequality of opportunity decreased from about 34 to 30 percent (23 to 19 percent) between 1998/99 and 2012/13 despite the increase in consumption inequality over the same period. The study then decomposes inequality of opportunity into the relative contribution of each circumstance and finds that the fall in disparities of opportunity over time is driven by the decrease in the relative contribution of ethnicity and north-south place of birth, especially in urban areas. Furthermore, the study reveals a higher opportunity gap in rural areas than urban, and among male-headed households than female. Secondly, the thesis investigates the nature of the north-south opportunity divide in Ghana. By estimating the level of inequality of opportunity in the northern and southern Ghana, the results unveil greater inequality of opportunity in the north compared to the south. This finding is attributed to the higher level of development as well as the availability of better economic opportunities in the latter compared to the former. The study also finds that the effect of circumstances on outcome is mainly direct rather than indirect through effort variables such as education, number of hours worked, migration and household composition. Using the opportunity profile, the least-advantaged group with respect to opportunities in Ghana are identified to be people whose father has no more than primary education and whose parents have been into farming activities most of their lives. The study further shows through the analysis of poverty profiles that the opportunity-deprived group is characterised by greater level of poverty, especially in the northern part of Ghana. This finding suggests that opportunity-deprivation may be related to poverty in Ghana. Furthermore, by examining the determinants of poverty in the opportunity-deprived group, the study shows that education as well as occupation of household members play an important role in moving a household out of poverty, especially when the household head is from the least-advantaged category. In addition, residing in a district with high employment prospects and low fertility may save households from poverty, particularly in northern Ghana. Finally, the study unveils the existence of considerable heterogeneities across districts in the levels and the progress on poverty, consumption inequality and inequality of opportunity. The result also showed that there is a positive and significant correlation between inequality of opportunity and poverty, and between inequality of opportunity and inequality of outcome. Surprisingly, the analysis reveals no association between the changes in inequality of opportunity and poverty reduction. Meanwhile, changes in consumption inequality are found to be positively correlated with changes in inequality of opportunity, suggesting that providing equal opportunities may help reduce outcome inequality in Ghana.