Changes in Welfare and Poverty in Ethiopia: an application of stochastic Dominance Criterion

Abstract

This paper analyses changes in the levels of rural and urban poverty in Ethiopia over time and across regions between 1994 and 1997 using household panel data. Particularly, it attempts to address the often disputable concept of poverty line in the analysis of poverty using advances in the literature of stochastic dominance criterion to compare income distributions. This is more so in the Ethiopian setting where errors in the measurement of a poverty line is confounded by the prevalence of multiple prices in different regional markets, different units of measurement of quantities consumed, varying consumption pattern of households across regions and other different characteristics that affect welfare comparison anchored on a measure that is consistent and invariant across the population in consideration. The paper examines the possible implications of changes in mean per-capita expenditure and income distribution on overall welfare and poverty for urban as well as rural areas of Ethiopia and is organized as follows: Section 2 discusses briefly the stochastic dominance literature as applied to welfare and poverty comparisons, section 3 reports empirical results particularly on rank and Generalized Lorenz dominance criterion's.