poverty
Abstract
This literature identifies various causes of poverty and inequality, including economic, social,
and political factors. Key measures include the poverty headcount ratio, poverty gap, and indices
like the Gini index and Palma ratio . The relationship between economic growth, poverty, and
inequality is complex. While growth can reduce poverty, its impact on inequality is ambiguous
and depends on the sources of growth . Some studies suggest that high levels of inequality can
hinder growth, creating a feedback loop that perpetuates poverty . Poverty and inequality often
lead to social exclusion, affecting access to essential services like education, healthcare, and
clean water. This exclusion can exacerbate the cycle of poverty . Effective policies to address
poverty and inequality often focus on inclusive growth, social protection, and equitable access to
resources. The Sustainable Development Goals (SDGs) emphasize reducing poverty and
inequality as key targets..
This literature review provide a broad understanding of how different forms of inequality impact
economic and social outcomes. Research has shown that gender inequality can be a significant
barrier to economic growth. Theoretical literature highlights how gender disparities in education,
employment, and decision-making roles can hinder economic development . For instance, gender
inequality affects fertility decisions and human capital investments, which are crucial for long-
term economic growth. In addition Studies indicate that rising income inequality can lead to
higher criminality, reduced political agency, and lower social capital formation . These outcomes
illustrate the broader social impacts of economic disparities, emphasizing the need for policies
that address income inequality to improve overall societal well-being . A comprehensive review
of gender equality research over the past two decades identifies key trends and emerging
themes. Topics such as women’s compensation, career progression, and participation in
leadership roles have been extensively studied. However, newer areas like female
entrepreneurship and leadership are gaining attention. The impact of monetary policy on
inequality is complex. Research suggests that employment responses to policy shifts, housing
wealth, and stock market exposure significantly influence how monetary policy affects
inequality.
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1. Introduction
National policy frameworks in Ethiopia have attempted to address inequality through a range of
poverty alleviation and social protection programs. The Ethiopian government implemented the
Growth and Transformation Plan (GTP) between 2010 and 2015, which aimed to achieve broad-
based economic growth and reduce poverty by focusing on human development, infrastructure
development, and good governance (Muleta & Belete, Citation2017). Despite these efforts,
regional disparities persist, and understanding the factors that drive these disparities has become
vital for planning effective policy interventions. A substantial body of literature exists on the
determinants of inequalities in welfare among households, which has identified factors such as
income, education, access to basic services, employment opportunities, social safety nets, and
demographic factors as significant determinants of welfare disparities between households
(Alemu et al., Citation2018; Korzeniewicz & Moran, Citation2018). The comparative analysis
seeks to discern the pivotal factors driving welfare disparities between urban and rural
households and to provide insights into potential policy interventions that could potentially
bridge the gap. Through its emphasis on the Ethiopian context, the study is further enhancing the
global understanding of the factors underlying inequality, thereby enriching debates on the
global and national development agenda and policy frameworks pertinent to the issue of welfare
inequality.
Conceptual Framework
Poverty: Traditionally defined by income levels, but modern approaches consider multiple
dimensions such as access to education, healthcare, and living standards. Inequality: Refers to
the unequal distribution of resources and opportunities among different groups in society. This
can be economic, social, or political. Absolute poverty is based on a fixed threshold (e.g., living
on less than $1.90 a day), while relative poverty considers an individual’s economic status
compared to the rest of society. Income and Consumption are Commonly used indicators
including GDP per capita, poverty headcount ratio, and Gini coefficient. Multidimensional
Poverty Index (MPI): Considers various factors such as health, education, and living standards to
provide a more comprehensive view of poverty.
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Causes and Drivers of poverty: Structural Factors Include economic policies, labor markets, and
social norms that perpetuate inequality. External Drivers: Such as globalization, technological
change, and environmental factors1.
Policy and Intervention Strategies: Social Protection Programs aim to provide safety nets for the
most vulnerable populations. Inclusive Growth Policies: Focus on creating economic
opportunities that benefit all segments of society. Contextual and Participatory Approaches and
Local Contexts: Recognize that poverty and inequality manifest differently in various settings,
requiring tailored solutions. Participatory Methods: Engage communities in the analysis and
decision-making processes to ensure interventions are relevant and effective.
Economic Growth and Poverty Dynamics in Ethiopia
According to the World Bank (2015), as of 2014 Ethiopia is sub-Saharan Africa’s second
most populous country, with a population of 96.5 million and a population growth rate of
2.5%. Its annual per capita income stands at $550, which is lower than the regional average
gross national income. Over the last decade, the country has experienced strong, broad-based
growth averaging 10.8% per year during the 2003/04 - 2012/13 period – compared to the
regional average of 5.3%. The current population of Ethiopia is 132,604,355 as of Thursday, August
29, 2024, based on World meter’s elaboration of the latest United Nations data.
Ethiopia is among the top-ten African countries in terms of GDP (US$54.8 billion in
2014), its GDP growth trend has not been stable over the years. During the period from 1981
to 2014, the GDP growth rate reached a lowest of -11.10% in 1984 and reached a peak of
13.9% in 1986 (World Bank, 2015). Between 2004 and 2013, the GDP largely remained
positive, averaging 11%. The post-2004 positive growth rate was mainly due to the focus on
heavy investment in infrastructure through the public sector led development strategy
(Wondifraw et al., 2015).
A non-parametric and parametric analysis of spells of poverty and their persistence suggests
that between 1994 and 1997, the incidence of absolute poverty in Ethiopia declined as a result
of a period of peace and stability, as well as the reform and economic recovery that took place
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in the country. The incidence then increased strongly in the years leading up to 2000,
following a period of drought, war with Eritrea and political instability; but declined again in
2004 as the economy recovered (Bigsten and Shimeles (2008).
Despite the country’s good growth performance over the past decade, the Global
Multidimensional Poverty Index (MPI) ranked Ethiopia to be among the poorest developing
countries in the world (see Oxford Poverty and Human Development Initiative, 2015). The
MPI measures the incidence and intensity of poverty based on three main dimensions namely
education, health and living standards disaggregated into ten weighted indicators. The ten
indicators are years of schooling, school attendance, child mortality, nutrition, electricity,
sanitation, water, floor, cooking fuel and assets.
A comparative analysis of measures of poverty shows that 36.8% of the population lives on
under US$1.25 per day whilst 72.2% lives on under US$2.00 per day. At a national level, the
MPI fell from 0.68 in 2000 to 0.53 in 2011; whilst the incidence of poverty (headcount) fell
from 93.6% to 85.2% over the same period. The multidimensional poverty in rural Ethiopia
also decreased between 2000 and 2011 (see Oxford Poverty and Human Development
Initiative, 2015: 7-8).
Concept and theory of poverty
Poverty is a complex and multifaceted issue that has been studied across various disciplines,
each offering different perspectives and theories. poverty is the state of lacking sufficient
resources to meet basic needs such as food, shelter, and clothing. However, the definition can
vary, Absolute Poverty refers to a condition where individuals do not have the minimum amount
of income needed to meet the basic necessities of life. Relative Poverty is defined in relation to
the economic status of other people in society. It means being significantly worse off than the
average person in the community . Several theories attempt to explain the causes and persistence
of poverty these are:- Individualistic Theories: these theories attribute poverty to personal
failings, such as lack of skills, education, or motivation. They often focus on individual
behaviors and choices .Structural Theories: these theories emphasize the role of societal
structures and institutions in creating and perpetuating poverty. Factors such as economic
inequality, lack of access to education, and discrimination are highlighted. Cultural Theories:
these theories suggest that poverty is perpetuated by a culture of poverty, where values, beliefs,
and behaviors are passed down from generation to generation, making it difficult for individuals
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to break out of the cycle . Economic theories: these theories focus on the economic systems and
policies that contribute to poverty. They examine issues like unemployment, inflation, and
economic recessions. Political Theories: these theories look at the role of political power and
policies in shaping poverty. They argue that poverty is a result of political decisions and the
distribution of power and resources .
Understanding poverty requires a multidisciplinary approach, considering the interplay of
individual, structural, cultural, economic, and political factors. This comprehensive view helps in
developing effective strategies to combat poverty and improve social welfare.
Determinates of poverty
Poverty is a complex issue influenced by a variety of factors. Here are some key determinants:
Economic Factors: Low income, unemployment, and underemployment are primary economic
drivers of poverty. Economic instability and lack of access to financial resources can perpetuate
poverty cycles . Social Factors: Social determinants include education, health care access, and
social exclusion. Limited access to quality education and health services can hinder opportunities
for economic advancement .Geographical Factors: Poverty often occurs in concentrated areas,
such as rural regions or urban slums, where there is limited access to resources like clean water,
sanitation, and housing . Political Factors: Governance, political stability, and policy decisions
significantly impact poverty levels. Corruption and ineffective policies can exacerbate poverty.
Cultural Factors: Cultural norms and values can influence poverty, particularly in societies where
certain groups face discrimination or social exclusion .Environmental Factors: Natural disasters,
climate change, and environmental degradation can destroy livelihoods and push people into
poverty. So that, Addressing poverty requires a multifaceted approach that considers these
various determinants.
3. Concept and theory of Welfare inequality
Welfare inequality refers to inequality among households relate to the uneven allocation of
resources, opportunities, and socio-economic prosperity within families and individuals across
the nation. This subject place emphasis on the diversities of living circumstances, resource and
service accessibility, and overall quality of life among diverse households, primarily based on
the differences between urban and rural areas.
The fundamental theory driving this inquiry is that various determinants impact the inequalities
in welfare among households. Some of the crucial factors encompass geographical location
(urban vs. rural), poverty, resource and service accessibility, educational attainment, and
employment prospects. Examining these determinants will be advantageous in understanding the
underlying reasons for the observed inequalities. Several studies have highlighted that poverty,
educational attainment, and resource access are the principal factors affecting households’
welfare (Mossie & Demissie, Citation2020). By examining these determinants, policymakers can
devise strategies and interventions aimed at reducing inequalities, improving households’
welfare, and fostering more inclusive and equitable development. Various theories and
viewpoints may aid in comprehending the origins and outcomes of these disparities,
encompassing factors like the allocation of wealth and more holistic dimensions of prosperity,
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such as competencies and availability of fundamental amenities. For instance, The Capability
Approach, an intellectual framework pioneered by Amartya Sen, centers on the notion of robust
freedoms and capabilities that a household possesses to experience an optimal standard of living.
The analysis of inequality in welfare is predicated on an evaluation of varying capabilities that
different households hold, encompassing their entitlements to education, healthcare, political
engagement, and others.
4. Determinates of inequality in welfare
The investigation of disparities in welfare among households in Ethiopia is a crucial initial step
in comprehending the socio-economic differences and developing effective policies for poverty
alleviation. Numerous empirical studies have been conducted regarding this matter, specifically
concentrating on the determinants of inequalities between urban and rural areas. These
determinants comprise income, consumption, education, gender, accessibility of services and
other factors that impact the well-being of households. Income is one of the principal
determinants of welfare inequalities. In Ethiopia, the income inequality between urban and rural
regions is considerable (World Bank, Citation2015).
As per the Central Statistical Agency of Ethiopia (Citation2016), the average annual per capita
income in the country was $797 for urban households and merely $291 for rural households.
This substantial disparity can be attributed to the differences in access to and quality of education
and employment opportunities between the two regions. Access to education is another
significant determinant of welfare inequalities in Ethiopia. Studies have revealed that individuals
with higher levels of education are more likely to have higher incomes and better access to
resources (Beyene & Mekonnen, Citation2014). Educational attainment is also essential in
providing individuals with relevant skills and knowledge that are necessary for sustaining
livelihoods and enhancing the well-being of households (Girma & Genebo, Citation2014).
However, access to education in rural areas of Ethiopia is limited compared to urban areas. A
study by Assefa and Letamo (Citation2019) discovered that urban households had better access
to primary, secondary, and tertiary education than their rural counterparts. Gender is another
factor that contributes to welfare inequalities in Ethiopia. Research has shown that women
experience more considerable income inequality than men due to limited opportunities for
education and employment (World Bank, Citation2015).
In addition, the accessibility of services, such as healthcare, water, sanitation, and electricity,
plays a crucial role in determining welfare inequalities. According to research, urban households
tend to have better access to these services than their rural counterparts (Alemu, Citation2011).
For instance, the Ethiopian Demographic and Health Survey (EDHS) of 2016 found that just
57% of rural households have access to improved sources of drinking water, compared to 83% of
urban households (Central Statistical Agency CSA & ICF, Citation2016).
Last but not least, it’s serious to remember that Ethiopia’s agricultural sector is essential for
household welfare, especially in rural areas where the majority of the population works in
agriculture (United Nations Development Program UNDP, Citation2014). Several factors, such
as access to land, technology, credit, and extension services, can impact the welfare of
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agricultural households. Studies have shown that addressing these factors can significantly
improve the welfare of agricultural households (Dercon & Krishnan, Citation2000). In
conclusion, the literature has highlighted several determinants of welfare inequalities among
households in Ethiopia, with urban and rural households experiencing varying levels of income,
education, gender disparities, access to services, and agricultural opportunities. The creation of
policies and interventions targeted at reducing inequality and enhancing the well-being of
households in both urban and rural contexts depend on an understanding of these determinants.
The conceptual Framework of this literature indicate that through an analysis of the association
among diverse socio-economic and demographic factors and the status of household
expenditures- is a key indicator of a household’s economic situation and is directly linked to
welfare inequality, we can gain a more comprehensive grasp of the status of inequality in terms
of welfare among household in the rural and urban areas in Ethiopia. By pinpointing the primary
drivers of this inequality, policymakers and stakeholders can formulate precise interventions and
strategies to tackle these disparities and strive towards establishing a more just living
environment for all citizens of Ethiopia
5. Conclusion
In this paper, we have explored the dynamic causal linkage between poverty-reduction and
economic growth in Ethiopia during the period from 1970 to 2014. The study was motivated
by the dynamics of economic growth and poverty in Ethiopia. Despite the country’s
remarkable growth performance over the past decade, and being among the top-ten biggest
economies in sub-Saharan Africa in terms of GDP, Ethiopia still remains one of the world’s
poorest countries; with a per capita income of $550, which is substantially lower than the
regional average.
The literature on poverty and inequality in Ethiopia highlights several key points: Persistent
Poverty: Despite significant economic growth, poverty remains a critical issue, particularly in
rural areas. The incidence, gap, and severity of poverty vary widely across different regions due
to factors like agro-ecological conditions and socioeconomic disparities. Income inequality has
shown an upward trend, with the Gini coefficient increasing from 0.29 in 1995/6 to almost 0.33
in 2015/162. This suggests that economic growth has not been evenly distributed, and wealth
disparities are widening. Urban-Rural Divide: There is a notable disparity between urban and
rural areas, with urban regions generally experiencing faster poverty reduction. However, within
regions, the urban-rural gap has also widened .
Policy Implications: The findings underscore the need for holistic, pro-poor policies that address
both economic growth and wealth redistribution. Effective poverty alleviation strategies should
consider regional differences and aim to reduce income inequality while promoting sustainable
development. Overall, while Ethiopia has made strides in reducing poverty, significant
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challenges remain in addressing inequality and ensuring that economic growth benefits all
segments of the population.
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