Economic Welfare in Ethiopia: Growth Scenarios for Exiting Poverty



Ethiopian Economics Association (EEA)
Degye Goshu


Poverty alleviation and equitable distribution of benefits among citizens are the overriding welfare objectives of developing countries. Ethiopia has been designing and implementing several development policies and interventions to attain such welfare objectives. However, poverty alleviation is still the primary development agenda of the country and the distribution of poverty across regions and population subgroups is becoming worrisome. In order to generate latest, relevant and reliable empirical evidence on these welfare issues, the third wave (2015) of the Living Standards Measurement Study (LSMS) dataset on Ethiopian was utilized. A sample of 4954 households with 22,296 household members covering all regions and cities were utilized for rigorous distributive analysis. FGT poverty indices and the time taken to exit poverty were estimated and decomposed by population subgroups and expenditure components. A right-censored Tobit model of welfare ratio was employed to identify the correlates of poverty and to predict the intensity and probability of poverty. The results of distributive analysis show that absolute poverty rate in Ethiopia was 22.1 percent with significant variation across regional states. Absolute poverty was also largely different by gender, place of residence (rural-urban), and religion. Similarly, depth and severity of poverty (6% and 2.4%) were varied across regions. Based on different growth scenarios of consumption expenditure per capita assumed (14%, 11%, 8%, and 5), the poor in Ethiopia would take 9.4-26.4 years to exit poverty. The Tobit model outputs indicated that the expected welfare ratio of the poor was 0.783, which was 21.3 percent far below the poverty line (ETB 14758). The likelihood of individuals to be poor was 22.0 percent, which is consistent to the FGT index (22.1%, about 22.1 million population). Poverty decomposition results show that absolute poverty rate in Ethiopia was highly attributable to rural areas (24.1%) with relative contribution of 88.5 percent compared to their counterparts in urban centers (12.7%). Similarly, decomposition of poverty by expenditure components verify that the absolute contribution of food consumption expenditure in reducing total poverty was 65.3 percent, whereas nonfood consumption expenditure contributed only 11.4 percent. The findings clearly suggest the need to design and implement relevant poverty reduction interventions for attaining Sustainable Development Goals (SDG) of ending poverty and hunger in all its forms by 2030.