Structural and stochastic poverty, shocks, and resilience capacity in rural Ethiopia

Abstract

Whilst structurally poor households fall below the income and asset poverty line, stochastically poor households fall below the income poverty line but above the asset poverty line. This distinction suggests different challenges for the households in dealing with shocks and building the resilience to make a lasting escape from poverty. Accordingly, we examine the effect of shocks on structural and stochastic poverty, transitions, and the role of resilience as a mechanism for dealing with shocks and stochastic and structural poverty using the Ethiopian Socioeconomic Survey data. We find that recurrent and concurrent shocks adversely impact structural and stochastic poverty, whilst resilience capacities can curb poverty as shocks intensify. Access to irrigation, literacy, good vegetation cover, and non-farm economic activities help eradicate both structural and stochastic poverty. Rainfall variability, drought, conflict, input and output price volatility, and idiosyncratic shocks all drive both structural and stochastic poverty. However, the critical implication for policy is that reducing structural and stochastic poverty requires enhancing resilience capacity. This will require promoting symbiotic rural–urban links and rural revitalization to ensure a balanced mix of development. The findings suggest that two distinct sets of policies are required to protect against falling into poverty and sustain movements out of poverty, namely harmonizing cargo net and safety net policies.