The Relationship Between Poverty, Inequality, and Growth in the Rural Ethiopia: Micro Evidence

This paper attempted to analyses the dynamic relationship between the three development objectives: inequality, growth and poverty. Given the vast majority of the population (about 85 percent) is living in the rural area and poverty being higher in rural than in urban Ethiopia, the Government’s focus on rural development can be acceptable if the country is to achieve its poverty reduction targets in near future. Contrary to this, the result of study shows that there has been no promising reduction in poverty in the past. The study used five rounds data collected from 18 rural villages through Ethiopian Rural Household Survey. FTG poverty measures, Gini index and General Entropy classes of inequality measures were calculated. Fixed Effect estimation was made based on 90 observations of indices obtained through decomposition. The estimation results show that a one percent growth would have reduced poverty gap by 3.25 percent, if part of it was not offset by higher inequality resulting a net effects of only 0.6 percent reduction in poverty gap. Growth in the past in the rural Ethiopia was not pro-poor implying that appropriate policy measures need to be taken to reduce the existing inequality.