Poverty and inequality in Ethiopia: 1995/96-2004/05

This paper explores trends in poverty and inequality, and the role of growth, inequality and sectoral changes in the evolution of poverty in Ethiopia between 1996 and 2005. We find that while poverty remains widespread, it declined markedly over this period. However, while inequality remained unchanged in rural areas, there was a substantial increase in urban inequality. In Ethiopia, income growth reduces poverty and increases in inequality increase poverty; the income-poverty elasticity lies in the range of -1.7 to -2.2. In rural Ethiopia, the increase in consumption has led to a reduction in headcount poverty. Growth also occurred in urban areas but the rise in inequality in urban areas wiped out the poverty-reducing effect that this growth might have otherwise provoked.