Growth and shocks evidence from strongruralstrong Ethiopia - Department.pdfVIP

Journal of Development Economics 74 (2004) 309– 329 /locate/econbase Growth and shocks: evidence from rural Ethiopia Stefan Dercon Department of Economics, University of Oxford, Manor Road, Oxford OX1 3UQ, UK Received 1 September 2002; accepted 1 January 2004 Abstract Using panel data from rural Ethiopia, the article discusses the determinants of consumption growth (1989–1997), based on a microgrowth model, controlling for heterogeneity. Consumption grew substantially, but with diverse experiences across villages and individuals. Rainfall shocks have a substantial impact on consumption growth, which persists for many years. There also is a persistent growth impact from the large-scale famine in the 1980s, as well as substantial externalities from road infrastructure. The persistent effects of rainfall shocks and the famine crisis imply that welfare losses due to the lack of insurance and protection measures are well beyond the welfare cost of short-term consumption fluctuations. D 2004 Elsevier B.V. All rights reserved. JEL classification: I32; O12; Q12 Keywords: Risk; Growth; Persistence; Famine 1. Introduction The study of poor people’s impediments to escape poverty remains at the core of development economics. This paper discusses the determinants of growth in living standards in a number of rural communities in Ethiopia between 1989 and 1997. The focus is on the role of shocks, such as drought and famine, on poverty persistence, as well as on identifying the correlates of welfare improvements. Inspired by the standard growth literature, the paper uses household panel data covering 1989 to 1997 and six villages across the country to study rural consumption growth in this pe