Economic Reform, Growth and the Poor: Evidence from Rural Ethiopia

Using micro-level panel data from villages in rural Ethiopia, the paper uses standard decompositions of income changes and develops a new decomposition of poverty changes to analyse the determinants of growth and poverty changes during a period of economic reform (1989-95). Consumption grew and poverty fell substantially, but the experience was mixed. I find that common and idiosyncratic shocks mattered, but that the main factors driving income changes are relative price changes, resulting in changes in the returns to land, labour, human capital and location. A regression-based decomposition of the changes in poverty shows that the poor have benefited on average more from the reforms than the non-poor households. But the experience of the poor is mixed: one group of the poor in 1989, with relatively good land, labour and location, outperformed all other households, while another group with much poorer endowments and location experienced virtually unchanged and persistent poverty.