Econometric Analysis of the Effect of Changes in Price on Consumption Pattern of Petrol, Rice and Bean in Owerri City, Imo State, Nigeria
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PRINT ISSN 1119-8362 Full-text Available Online at J. Appl. Sci. Environ. Manage. Electronic ISSN 1119-8362 https://www.ajol.info/index.php/jasem Vol. 24 (8) 1403-1408 August 2020 http://ww.bioline.org.br/ja Econometric Analysis of the Effect of Changes in Price on Consumption Pattern of Petrol, Rice and Bean in Owerri City, Imo State, Nigeria *NWOSU, UI; VINCENT, U Department of Statistics, Federal University of Technology, Owerri, P.M.B. 1526, Owerri, Imo State, Nigeria *Corresponding Author Email: [email protected]; Tel: +2347061118381 ABSTRACT: It was hypothesized that changes in price could affect the consumption pattern of petrol, rice and bean, their status as basic needs notwithstanding. To test this hypothesis, primary data were generated, subjected to econometric model and analyzed. Two-hundred residents of different income groups who live in Owerri city, Imo State, Nigeria and have used petrol, rice and bean for at least ten years and were not less than thirty-one years old were sampled using standard method. The pretest result of questionnaire validity and reliability was r = 0.726 and this indicates high reliability. A total of 90% strongly agreed and agreed that prices of petrol, rice and bean are unstable in Owerri City, Imo State, Nigeria. The results indicate that 70% of the consumers strongly agreed and agreed that price affects consumption of the products irrespective of need. This was a significant observation too. In the study, availability of petrol, rice and bean affected consumption in an urban environment.Grain quality was found a strong determinant of consumption of rice and bean in the city. There was a positive and non-significant relationship between price and consumption of petrol, rice and bean and this shows that price is not the most important determinant of consumption of all commodities. Necessity was more important than price in consumption of petrol, rice and bean in the city of Owerri, Imo State, Nigeria. These findings are useful to econometricians, policymakers, governments and households. DOI: https://dx.doi.org/10.4314/jasem.v24i8.15 Copyright: Copyright © 2020 Nwosu and Vincent. This is an open access article distributed under the Creative Commons Attribution License (CCL), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Dates: Received: 30 May 2020; Revised: 03 July 2020; Accepted: 05August 2020 Keywords: Basic needs, Econometric model, Income groups, High reliability, Grain quality. Price is the principal determinant of consumption health and total existence of citizens, particularly the patterns in the society (Green et al., 2013; poor (Martinez-Lacoba et al., 2020). The global food Piligrimiene et al., 2020). It has been noted that crises of 2007 to 2008 attracted international household food consumption pattern in Nigeria has attentions to effect of changes in food price on experienced dramatic changes in recent times nutrition, health and consumption pattern (Ndubueze- (Obayelu et al., 2009). The persistent rise in prices of Ogaraku, 2016). From the international point of view, commodities in Nigeria is strongly related to there is evidence that rise in price adversely affects government and the manipulation of petroleum dietary diversity and quality; causing disorderliness in products, especially petrol. Petrol has very powerful the country, and wealth less individuals are mostly influence that shortages and changes in price disrupt affected (Mazzocchi et al., 2012). Developed essential transactions and changes economic situation countries are implementing felicitous fiscal measures (Ocheni, 2015). Increases in prices of petroleum with the capacity to change the relative price of foods products have culminated in inflation, inequitable in order to sustain healthy diets and promote better distribution of income and high cost of living livelihood (Smed, 2012). Unfortunately, this is not (Arinze, 2011; Ndubueze-Ogaraku, 2016). This has the case in Nigeria and therefore, it is necessary to incontrovertibly resulted to instability in the prices of perform routine analysis of the effects of changes in goods and services in almost all sectors of the price on the consumption pattern of the people in economy. Petrol, rice and bean constitute basic needs order to create awareness and identify factors of of the people and most economic activities rely on importance. Studies on consumption patterns are petrol. Rice and bean are palatable, nutritious and necessary because it shows estimates of how used industrially in the manufacture of other products consumption is affected by changes in price, income and thus are critical in domestic, national and and taxation policies (Dunnem and Edkins, 2005). international food security (Gnanamanickam, 2009; Leaders and policymakers have shown serious Lopes et al., 2016; Nwosu et al., 2016). High concerns about the effects sharp price increases in commodity prices have bad consequences on the diet, food commodities can have on welfare of the people *Corresponding Author Email: [email protected]; Tel: +2347061118381 Econometric Analysis of the Effect of Changes in Price on….. 1404 and food security. Aliyu and Amadu (2017) stressed Y X X X u , that in Nigeria, per-capita growth of production of i 0 1 1i 2 2i 3 3i i major foods is not enough to meet the demands of i = 1, 2, 3, n (1) ever increasing urbanization and population. This creates the need to perform routine analysis in order From theoretical perspective, the model states that to identify factors of importance. The removal of consumption rate depends on price of petrol, rice and petrol subsidy and economic recession led to bean. The consumption pattern is weighted alarming increase in the price of commodities in combination of petrol, rice and bean. The weights Nigeria. Till date, many Nigerians are yet to recover. Petrol, rice and beans appear indispensable in the 1 , 2 and 3 are the respective effects of a survival of Nigerians. Therefore, the objective of this unit change in the increase in the prices of these study is to determine the impact of changes in price basic items on the consumption rate through price on consumption pattern of petrol, rice and bean in the change. Thus consumption rate is expressed as study area. follows; MATERIALS AND METHODS Consumption Pattern 0 Petrol Price + This study was carried out in Owerri city, Imo State, 1 Rice Price + Beans Price + Error Nigeria in 2019. The population of Imo was projected 2 3 as 5,408, 800 in 2016 (National Population Where, Error = Consumption Pattern Commission of Nigeria and National Bureau of Petrol Price - Rice Price - Bean Statistics). Owerri city is situated in the cities place 0 1 2 3 category with global positioning system coordinates Price of 5° 28' 34.7160'' N and 7° 1' 33.0708'' E. On the estimation, the intercept ( 0 ) and slope The latitude is 5.476310 and the longitude is coefficient ( 1 , 2 , ) are expected prior to 7.025853 (https:/www.latlong.net/place/owerri-imo- 3 nigeria-13046.html). Primary data were sufficiently having a positive sign, i (i =0, 1, 2, 3) > 0, generated for the investigation. Well-structured implying that consumption rate is expected to questionnaire was self-administered randomly to two- correlate positively with the increase in prices of hundred residents who live in Owerri city and are not petrol, rice and bean while error is the random less than thirty-one years old. The sampled disturbances in the model. The model is based on population must have used petrol, rice and bean for at some basic assumptions about the regressors and the least 10 years. Petrol, rice and bean were chosen error terms. because of their importance. The questionnaire was validated and the reliability was tested using The assumptions concerning the error term; Cronbach Alpha coefficient (Robinson, 2009; Feng i. is a random vector and Yamat, 2019). The questionnaires were ii. E() 0 completed on the spot and were returned immediately. 2 i j iii. 2 E() I n that is E(i j ) The questionnaire provided answers to the research 0 i j questions and hypothesis. The null hypothesis (H0) 2 tested states that changes in price do not have any iv. ~ NID(0, I n ) effect on consumption rate of petrol, rice and bean in The assumptions concerning the explanatory Owerri City, Imo State, Nigeria. Whereas, the variables; alternative hypothesis (H1) states that changes in i. The values taken by X variables are fixed in price have an effect on consumption rate of petrol, repeated sampling. rice and bean in Owerri City, Imo State, Nigeria. The ii. The non-stochastic regressors (X) and the level of significance considered was 0.05. The stochastic error terms are uncorrelated. That is decision rule was to reject the null hypothesis if the p- E(X ) 0 value is less than the level of significance and accept iii. The regressors are linearly independent, if otherwise. To test this hypothesis and check whether consumption rate remains unaffected hence X X 0, which follows that X matrix has irrespective of changes in price, multiple regression rank r (k 1) n econometric model was applied as follows: NWOSU, UI; VINCENT, U Econometric Analysis of the Effect of Changes in Price on….. 1405 Statistical Package for the Social Sciences (SPSS) hundred respondents (50%) worked in the public version 23.0 was the software used to run the sector, 50 respondents (25%) worked in the private analysis. The normal percentage probability was sector and 50 respondents (25%) were self-employed. plotted against the residual for the model. The Figure 3 summarizes the percentage responses of residuals are ; where is the respondents that prices of petrol, rice and bean are average observation in the (ij)th cell. If the points unstable in Owerri City, Imo State, Nigeria. A total of follow approximately along the diagonal line, it is 90% strongly agreed and agreed to this assertion and concluded that the data are approximately normally this is a significant observation.