Growth, Shocks and Poverty during Economic Reform: evidence from rural Ethiopia, by Stefan Dercon. March 13, 2002

Using micro-level panel data from villages in rural Ethiopia, the paper studies consumption and poverty changes to analyse the determinants of growth and poverty changes during a period of economic reform (1989-97). Consumption grew and poverty fell substantially, but with diverse experiences across villages and individuals. During this period common and idiosyncratic shocks mattered for consumption, suggesting imperfect risksharing, credit and savings opportunities. In the ...rst period considered, 1989-94, the main factors driving income changes are location-speci...c rural-urban terms of trade changes, linked to economic reform, resulting in changes in the returns to land, labour, human capital and location. In the second period, relative price changes suggest a further impact, although they are less likely to be linked to the reforms. Weather-induced shocks continue to dominate the experiences of many households their experiences. Overall, there is evidence residual growth in this period. Finally, food aid and other safety net policies came into the picture largely after 1994, but little impact on households could be detected in the data. A regression-based decomposition of the changes in poverty shows that the poor have bene...ted on average more from the reforms than the nonpoor 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. JEL Classi...cation: I32, O12, Q12 March 2002 Paper prepared for the IMF Conference on Macroeconomic Policies and the Poor First Draft for Comments