Why Poverty Persists by Catherine Porter

A poor life? Chronic poverty and downward mobility in rural Ethiopia, 1994-2004Stefan Dercon and Catherine Porter University of Oxford

An applied analysis of rural Ethiopia• Using a (by now well known) panel dataset from rural Ethiopia we explore poverty dynamics between 1994 and 2004• Looking `trajectories’ of the poor over time• Identification (in comparison with snapshot)• What are the determinants of chronic poverty and downward mobility?

Summary of findings• 1984 Famine is still an important predictor of chronic poverty• Chronic poor have fewer assets in 1994, but do actually have an upward growth path over time• Illness and agricultural shocks are important in pushing people down to a point from which they cannot recover• Suggests different and complementary policy approaches for the chronic and declining poor

Methodology• Static poverty measurement (snapshot) is fairly established in economics• Chronic poverty literature has begun to bloom with several competing measures• No consensus as yet on how to aggregate poverty over time• We extend the well-known FGT poverty measures by discounting the past to identify different trajectories of poverty

ERHS Data• Collected by IFPRI with Oxford, Addis Unis• Use data from rounds 1-6 of ERHS (1994-2004, excluding R2)• 15 villages in Ethiopia, 1100 households in this analysis• Relatively representative though small• Use consumption as our welfare indicator (per adult equivalent, adjusted for inflation)

Static Poverty over time Squared Mean Poverty poverty consumptionYear Headcount gap gap among poor (Birr)1994 0.39 0.16 0.09 26.841995 0.44 0.19 0.10 25.721997 0.24 0.08 0.04 30.311999 0.28 0.09 0.04 31.132004 0.22 0.07 0.03 30.29

Who are the poor 10 years later?• Of the households who were classified as poor in 1994: – just under a third were still poor in 2004 – comprising 9.7 per cent of all households.• A higher percentage of households (24.8 per cent) moved out of poverty than fell into it (10.2 per cent)• Just over half (55.3 per cent) of all households in the sample were non-poor in both 1994 and 2004• This helps explain the sharp decline in the headcount poverty rate noted above

Number of periods in poverty Number ofTimes in Poverty households Per cent Cum. %Never 420 36.02 36.02Once 291 24.96 61.07Twice 202 17.32 78.51Thrice 142 12.18 90.27Four times 81 6.95 97.43Always 30 2.57 100Total 1,166 100

Characteristics of the chronic poor in rural Ethiopia

Characteristics of the chronic poor in rural Ethiopia• Geographically concentrated with pockets ofdeprivation.• Lowest rates amongst the two biggest ethnic groups• Average number of ill hh members>1 (non chronic poor=0.5)• 40% have low BMI (compared to 22% of non-chronic poor)• Famine affected areas in 1984 are a very strong predictor of chronic poverty• Road improvement, cultivating coffee and havingassets (livestock, schooling) in 1994 reduceprobability of chronic poverty

Are the Chronically Poor and Declining Poor Different?• Some similarities but the declining poor have more assets than the chronic poor)• Rainfall and agricultural shocks matter more in pushing people into poverty• High share of agricultural income in 1994 reduces the probability of declining into poverty• Schooling and gender of household head not predictors of declining into poverty

Summary & Policy Implications• In 1994, 39% of EHRS households were poor• Of these, only a few would stay in poverty, and many others would fall into poverty• 1984 famine plus in 1994 having low assets, low schooling and female head predict chronic poverty in the coming decade• Having higher share agricultural income, experiencing shocks or poor rainfall predict downward trajectories• Suggests asset building is the key to reducing chronic poverty, including education, as well as employment opportunities.• And more comprehensive safety nets are needed to complement this for chronic poor and for vulnerable

Why Poverty Persists by Catherine Porter

by International Food Policy Research Institute (IFPRI) on Jun 05, 2012

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