Vulnerability, seasonality and poverty in Ethiopia

TLDR

Consumption in rural Ethiopia fluctuates sharply over short periods, making cross‑sectional poverty measures unreliable. The study investigates the extent of short‑run poverty variability. Using a panel of 1,450 households surveyed three times over 18 months, the authors model consumption shocks from rainfall, crop failure, and seasonal labor and price changes. While average year‑to‑year poverty remains similar, seasonal consumption swings reveal that many households are vulnerable to shocks and that some non‑poor households temporarily lift consumption to exploit seasonal incentives.

Abstract

Most studies examining the dynamics of welfare have found large fluctuations in consumption over relatively short periods, suggesting substantial short‐run movements in and out of poverty. The consequence is that cross‐section poverty research may not be able to identify the poor. In this study, we explore this short‐run variability further. We use a data set on a panel of 1450 households in different communities in rural Ethiopia, surveyed thrice, over 18 months. On average year‐to‐year poverty is very similar. However, we find high variability in consumption and poverty, over the seasons and year‐by‐year. Econometric analysis suggests that consumption is affected by idiosyncratic and common shocks, including rainfall and household‐specific crop failure, while households respond to seasonal incentives related to changing labour demand and prices. The results imply that a larger number of households are vulnerable to shocks than implied by the standard poverty statistics, while some of the non‐poor in these statistics are in fact otherwise poor households temporally boosting their consumption as an optimal response to changing seasonal incentives.