Doug Scott

Income shocks and poverty traps in rural Ethiopia

The dynamics of poverty in developing countries has attracted increased attention in recent years. A small, but growing, literature has sought to identify mechanisms which serve to trap specific groups in a state of persistent deprivation over time. This paper employs an innovative approach to detecting such poverty traps, through heterogeneity in the coping strategies used by households in response to an income shock. Evidence is found of two distinct patterns of response to the recent El Niño drought, amongst agricultural households in rural Ethiopia. Households with pre-shock cattle holdings of three or more animals effectively use these assets as a buffer against the fall in agricultural income. In contrast, households with smaller herds preserve their current herd size, at the expense of destabilising consumption. These results highlight the stark choices faced by some households during this period, to either reduce consumption today or potentially undermine productivity in the future.

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