The contribution of human capital development to variances in poverty increased from about 2 percent in the second period to about 18 percent in the last period. The contribution of human capital development to variances in REER was about 4 percent in the first period and increased to about 9 percent in the 9th period. The contribution of absorption to variances in all the variables and that from all the variables to absorption is insignificant. Thus, the volatility of the REER has significant effect on the level of poverty in Nigeria. The implication of the result is that government policies which targets RER could play significant role in reducing the level of poverty in Nigeria. The result of the parsimonious Error Correction Model shown in the appendix had similar findings. The result showed that the coefficient of the REER is statistically significant and displays a positive sign which indicates that a RER depreciation is potentially beneficial to the poor. Our result also showed that human capital development proxied by primary school enrolment has a positive and significant impact on poverty. This is an indication that the quality of human capital development has the tendency of enhancing the positive impact of an appropriate RER policy on poverty alleviation. This result is in agreement with Oumar who found in his study on poverty and RER in some selected countries using panel data and the System General Method of Moments estimator that both secondary and primary school enrolments are positively and significantly related to the income of the poorest fifth of the population in some selected countries. The statistical insignificance of absorption does not mean a complete absence of a relationship between absorption and poverty but it rather insinuates that absorption play indirect role because of its impact on economic growth.
The Nigerian economy has undergone structural reforms over the years due to both internal and external instability. The dependant economy model which encompasses the reduction in absorption via fiscal adjustment and RER depreciation was adopted for this paper. However, in this paper we focused more on assessing the relationship between poverty and the RER. The main focus of the theory is that a deprecation of the RER is needed to curtail the surge of poverty on the ground that basic institutions are sound. The findings from both the VECM and the variance decomposition suggests that the RER could be an important instrument for poverty reduction provided other policies such as good effort towards human capital development are put in place. These material and nonmaterial deprivation has made poverty to be endemic in Nigeria. Data reveal that only 50% of Nigerians have access to clean water, while 38% cannot afford primary health care. The most worrisome is the decline in the Human Development Index for Nigeria from 0.400 in 1996 to 0.39 in 1997, thus placing Nigeria in 137 out of 141 countries ranked in order of affluence. Nearly 50% of the total national income is owned by just about 20% of the highest income earning group (James, 2008). read only