Measuring vulnerability to poverty : an empirical evidence from Ethiopian rural household survey (ERHS)

Abstract: Poverty reduction policies and strategies implemented in many developing countries like Ethiopia mainly target the current poor and neglect of the vulnerable. An understanding of household vulnerability to future poverty is crucial for sustainable growth and development to such countries. The objective of this study is to assess ex-ante welfare of each household from vulnerability to poverty estimates among households in rural Ethiopia and examine the effect of various socioeconomic characteristics on vulnerability to poverty. This thesis uses a single cross-sectional data set from the year 2009 and the seventh round survey to analyze the welfare of each household using the current real consumption expendi-ture deflated in 1994 prices. The study employs a three step Feasible Generalized Least Squares (FGLS) estimation procedure to estimate vulnerability to poverty and to predict the effect of household socioeconomic status on expected future consumption and analyze the variations in future consumption. The results show that, about 51% of households in Ethiopia are vulnerable to poverty that is significantly higher than the current poverty level of about 29%. While the Northern and the southern regions have the highest average vulnerability of approximately 52%, Oromia region has 49% vulnerability to poverty ratio. Household size, possession of livestock, farm size, and off-farm income, amount of rain fall, and basic goods and services received are the variables that significantly impact vulnerability to poverty. The results suggest that poverty and vulnerability to poverty are independent concepts. Thus, policies concerning poverty reduction need to take into account current non-poor but vulnera-ble households with the poor households.