Public Disclosure Authorized ETHIOPIA POVERTY ASSESSMENT Public Disclosure Authorized 2014 Public Disclosure Authorized Public Disclosure Authorized P.O.Box 5515 POVERTY Addis Ababa Bole Road/ Africa Avenue GLOBAL PRACTICE www.worldbank.org/ethiopia AFRICA REGION Report No. AUS6744 ETHIOPIA POVERTY ASSESSMENT January 2015 Poverty Global Practice Africa Region Document of the World Bank For Official Use Only iii TABLE OF CONTENTS ACKNOWLEDGEMENTS ................................................................................................................................ xi ABBREVIATIONS AND ACRONYMS .......................................................................................................... xiii EXECUTIVE SUMMARY ..................................................................................................................................xv INTRODUCTION ...........................................................................................................................................xxv 1. PROGRESS IN REDUCING POVERTY AND INCREASING WELLBEING, 1996-2011 ......................1 1.1 Recent progress in poverty reduction ..................................................................................................................2 1.2 Sensitivity of poverty estimates ...........................................................................................................................5 1.3 The incidence of progress and shared prosperity .................................................................................................9 Growth incidence ...............................................................................................................................................9 Shared prosperity .............................................................................................................................................11 Inequality .........................................................................................................................................................13 Decomposing changes into growth and redistribution......................................................................................14 1.4 Who are the poor and poorest households in 2011? ..........................................................................................16 1.5 Outlook: Ending extreme poverty in Ethiopia ..................................................................................................21 2. MULTIDIMENSIONAL POVERTY IN ETHIOPIA .................................................................................25 2.1 Introduction .....................................................................................................................................................25 2.2 Trends in non-monetary dimensions of wellbeing .............................................................................................26 Education ........................................................................................................................................................28 Health ..............................................................................................................................................................29 Command over resources and access to information ........................................................................................29 2.3 Overlapping deprivations .................................................................................................................................30 2.4 Perceived improvements in wellbeing................................................................................................................35 2.5 Deprivations that particularly affect girls and women .......................................................................................35 2.6 Conclusion .......................................................................................................................................................37 3. THE CHANGING NATURE OF VULNERABILITY IN ETHIOPIA ......................................................39 3.1 Sources of risk in today’s Ethiopia .....................................................................................................................39 3.2 Measuring vulnerability in Ethiopia ..................................................................................................................42 3.3 Vulnerable places or vulnerable people? ............................................................................................................46 3.4 Summary and conclusion .................................................................................................................................50 iv ETHIOPIA – POVERTY ASSESSMENT 4. DRIVERS OF POVERTY REDUCTION IN ETHIOPIA ..........................................................................51 4.1 Decomposing poverty reduction .......................................................................................................................52 4.2 Drivers of poverty reduction .............................................................................................................................56 Has growth contributed to poverty reduction? .................................................................................................56 Understanding the relationship between agricultural growth and poverty reduction .........................................58 Safety nets and investments in public services ..................................................................................................63 4.3 Implications for future poverty reduction .........................................................................................................64 5. A FISCAL INCIDENCE ANALYSIS FOR ETHIOPIA ...............................................................................67 5.1 Taxation incidence ............................................................................................................................................68 5.2 Incidence of public expenditure ........................................................................................................................73 Direct transfers made through the PSNP and food aid .....................................................................................74 Education ........................................................................................................................................................75 Health ..............................................................................................................................................................77 Indirect subsidies .............................................................................................................................................78 Overall incidence of public spending ...............................................................................................................79 5.3 Overall incidence of taxes and spending and impact on poverty and inequality ................................................80 6. NON-FARM ENTERPRISES AND POVERTY REDUCTION IN ETHIOPIA ......................................83 6.1 Introduction .....................................................................................................................................................83 6.2 Prevalence and nature of NFEs in Ethiopia .......................................................................................................84 6.3 The role of NFE in incomes of poor households ...............................................................................................86 6.4 Constraints to NFE activities ............................................................................................................................89 6.5 Conclusion .......................................................................................................................................................93 7. MIGRATION AND POVERTY IN ETHIOPIA .........................................................................................95 7.1 Introduction .....................................................................................................................................................95 7.2 Migration in Ethiopia .......................................................................................................................................96 7.3 Migration and poverty ....................................................................................................................................100 7.4 What constrains migration in Ethiopia? ..........................................................................................................104 7.5 Conclusion .....................................................................................................................................................106 8. UNDERSTANDING URBAN POVERTY .................................................................................................107 8.1 Work and urban poverty .................................................................................................................................108 8.2 Reducing poverty in urban centers through work: a framework ......................................................................113 8.3 Urban poverty among those unable to work ...................................................................................................118