THE CONTRIBUTIONS OF AGRICULTURAL GROWTH TO POVERTY REDUCTION IN ETHIOPIA

Authors

  • Mr. Getahun Tafesse Country Investment Manager Author

Abstract

This study investigates agricultural growth-poverty relationships at the national and 
household levels. A rural household model is used to measure the impact of agricultural 
growth (or decline) on consumption first and the effect of consumption changes on poverty 
using regression analyses. Two approaches are used here to estimate the agricultural 
growth elasticity of poverty. First, the growth elasticity of poverty is determined and then 
using the agriculture elasticity of growth, the agriculture growth requirement for the change 
in poverty is estimated indirectly. In the second approach, a two-stage analysis is used to 
arrive at the growth requirement by estimating first the determinants of welfare (household 
consumption expenditure) and estimating the poverty impact of a certain growth using the 
relationship between expenditure and poverty incidence. 
Accordingly, a forty-year time-series national account data has indicated that a 1 percent 
growth in agriculture would lead to a 0.32 percent growth in GDP. Given the GDP growth 
elasticity of poverty, it also followed that a 1 percent increase in agricultural production 
would lead to a 0.24 percent decline in poverty incidence at the national level. At the 
Household level, the base simulation has provided a poverty incidence of 40.2 percent in 
rural areas with 11.2 and 24.9 poverty gap and severity respectively for the year 1995/96. 
Given the actual and base simulation poverty measures and assuming the percentage 
change in percapita value added of agricultural production reflects the same percentage 
change in consumption per capita (adult) and that income distribution remains the same, 
the application of the same poverty line in real terms4
, has provided a poverty incidence of 
63.6 percent and a poverty gap of .22 for the year 2000/01. Such a rapid increase in 
poverty level goes very well with the general perception of the public as expressed during 
the PRSP consultation and with other studies by non-governmental organizations. Here 
agricultural growth elasticity of poverty becomes -3.62, which is very high. When inflation is 
ignored the agricultural growth elasticity of poverty becomes -2.12. Based on another 
assumption that takes the long-term trend in agricultural growth, poverty incidence and gap 
for 2000/01 become 46.5 percent 13.7, implying agricultural growth poverty elasticity of -
0.98, or almost equal percentage change in opposite direction. So, it is likely that a one 
percentage increase in agricultural per capita value added will result into a one percent 
decline in poverty level of rural households. 

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Published

22-08-2024

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How to Cite

THE CONTRIBUTIONS OF AGRICULTURAL GROWTH TO POVERTY REDUCTION IN ETHIOPIA. (2024). Ethiopian Journal of Economics, 14(1), 1-25. http://ethiopianjournalofeconomics.org/index.php/EJE/article/view/52