Empirical Analysis of the Relationship between Poverty and Economic Growth in Ethiopia: Micro-Panel Data Evidence from Amhara Region

Reduction of poverty is still a vital concern and main challenge for Ethiopia, the second most populous country after Nigeria, in the SSA. With the government’s consistent implementation of its Poverty-Reduction-Strategy (PRS) Ethiopian households experienced a decade of remarkable progress in wellbeing. Poverty in Ethiopia declined at an annual average of 2.32 percentage points since 1995. Besides, Ethiopia, having registered high economic growth since 2005 at an average of 10.8 percent per annum, stands out as one of the fastest growing economies in the world. Despite all this, Ethiopia is amongst the poorest countries in the world, with a very low human-development ranking, or 174th out of 188 countries according to the UNDP’s human development report 2015. According to the estimation of the WB, About 23 million of Ethiopians live in condition substantially below the basic poverty line and food security remains a major challenge. This study examines the empirical relationship between growth and poverty in Amhara National Regional State (ANRS) of Ethiopia. The study estimated the fixed effects models (FEM) using panel data from four household income, consumption and expenditure (HICE) surveys conducted in the region between the period 1995/96 to 2010/11 by the central statistics authority (CSA) of Ethiopia.

The FEM estimation results of this study indicated that growth in average expenditure per capita of a household and change in inequality has a negative and significant and positive insignificant effect on poverty in the ANRS, respectively, implying that growth plays a pivotal role on reducing poverty and a rise in inequality lead to a rise in poverty in ANRS. The study has also revealed that growth contributes far more towards reducing poverty, keeping inequality constant, than the latter does to increasing poverty, holding the former constant. Besides, estimation of the net effects of growth on poverty indicated that the absolute magnitude of the net elasticity of poverty to growth is smaller than that of the gross elasticity of poverty to growth, implying that some of the growth effect on poverty is offset by the increase in inequality. Based on the finding of this study, we recommend that, at a policy level, in order to deal with poverty problems effectively, the government should implement policies focusing on growth as well as redistributing income in favour of the poor and middle class households in all administrative zones of the region.