The Dynamics of Poverty and Vulnerability in Rural Ethiopia: a Nonlinear Panel Data Analysis

Course ID
Ethiopian Economics Association (EEA)
Degye Goshu Habteyesus

This paper analyzes the dynamics of poverty and vulnerability and their determinants and correlates in rural Ethiopia. The study uses the ERHS panel data for the latest two rounds in the four major regional states and a pool of about 2495 households from the major sedentary farming systems of the country. The paper generates new empirical information on the national dynamics, determinants, and regional distribution of rural poverty and vulnerability. It exploits the methodological power of panel data models to capture the temporal and spatial dynamics of poverty which cannot be accounted for by simple time series or simple cross sections. The descriptive measures indicate that depth and severity of poverty were significantly reduced, respectively, from 88.9% and 3.6% in 2004 to 39.2% and 0.7% in 2009, but with increasing number of households falling under the poverty line. Two nonlinear panel estimators, RE probit and GEE PA probit models were estimated with magnificent consistency. The most important determinants of poverty dynamics in rural Ethiopia between 2004 and 2009 were indentified to be household size, livestock holding, farming occupation, life status, social network, regional dummies, and omitted covariates captured by the constant term. The predicted probabilities from the two estimators are also dependable demonstrating that the mean probability of rural households to be trapped in poverty was about 45.8%. The estimated marginal effects on poverty dynamics show that there were momentous divergences among regional states in terms of poverty reduction. Expected household consumption was estimated by linear panel estimators (GLS RE, between effects, and GEE PA) to generate binary response variables for estimation of vulnerability as expected poverty. Vulnerability to poverty in rural Ethiopia ranges from 40.9% to 43.4%, demonstrating that households were not vulnerable to poverty and were expected to gravitate to longrun better well-being. Vulnerability to poverty was reduced but the speed at which the poor are escaping from poverty was sluggish, which may lead to a prolonged period of policy intervention to tackle problems arising from idiosyncratic and covariate shocks.

Corporate Author:Demirew Getachew; Getenet Alemu; Worku Gebeyehu (Editors) and Ethiopian Economic Association
Publisher:Ethiopian Economic Association (EEA)
Primary Descriptors:vulnerability

Secondary Descriptor:random effects; panel probity

Geographic Descriptors:Ethiopia
Broad Subject heading:Poverty index
Call Number:330.963 PRO 2013
Serial Key Title:Proceedings of the Tenth International Conference on the Ethiopian
Publication catagory:International Conference
Content type:EEA Publication
Publication date:2013-06-03 00:00:00
Conference Place:EEA Multi-Purpose building conference hall, Addis Ababa
Place of publication:Addis Ababa, Ethiopia
Type of material:Book
Current frequency:Annualy
Author: Degye Goshu Habteyesus
Conference date:July 19 – 21, 2012

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