The Dynamics of Poverty and Vulnerability in Rural Ethiopia

Abstract

This paper uses the Ethiopian Rural Household Survey (ERHS) panel data of a pool of 2495 households sampled from sedentary farming systems of the country. It investigates the dynamics and determinants of poverty and vulnerability and generates new empirical information on the national dynamics, determinants, and regional distribution of rural poverty and vulnerability. The poverty indices show that depth and severity of poverty were reduced, respectively, from 88.9% and 3.6% in 2004 to 39.2% and 0.7% in 2009, but with increasing poverty incidence. The estimation results from the random effects probit model suggest that determinants of poverty status in rural Ethiopia between 2004 and 2009 were household size, livestock holding, farming occupation, life status, social network, regional dummies, and other exogenous shocks. The marginal effects of these factors on poverty status point out that there were considerable differences in poverty situation among regional states, suggesting that poverty reduction was relatively more enhanced in Oromia followed by Amhara and SNNP regions. The likelihood of households to be poor was about 45.4%. Assuming a threshold of 50%, vulnerability of households in rural Ethiopia was about 43.4%, suggesting that households’ vulnerable to poverty as recued between 2004 and 2009. While many households were escaping from poverty, others were descending into the poverty trap, indicating reduction of relative poverty among the poor and the nonpoor. In order to reduce overall poverty in rural Ethiopia, integrated poverty reduction efforts should be enhanced and spatial differences in welfare effects need to be accounted for.

Keywords: Poverty, Vulnerability, Panel Probit, Ethiopia