Poverty persistence and informal risk management: Micro evidence from urban Ethiopia

Azomahou T.T. and Eleni Yitbarek ()

No 2015-006, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: Two factors that have received limited attention in poverty dynamic studies are the role of risk in causing poverty mobility and attrition bias. Controlling for the attrition bias, we study poverty dynamics in urban Ethiopia with an emphasis on the effect of idiosyncratic shocks and informal risk management strategies. We used a unique panel data spanning a decade. Our results show the adverse impact of uninsured idiosyncratic shocks on welfare. We find unemployment of household head propels households to persistent poverty. We also observe poor households using ineffective risk management strategies which have negative consequences on welfare than their non-poor counterparts. Further, we find strong poverty state dependence which is mainly driven by households heterogeneity. The overall results of our study suggest that public insurance programmes that support poor households during bad times may improve welfare by providing consumption insurance. Indeed, policies focusing on household heterogeneities such as exposure to risk, lack of education, personal skills and capacities, could have long lasting effects.

Keywords: Personal Finance; Measurement and Analysis of Poverty; Microeconomic Analyses of Economic Development (search for similar items in EconPapers)
JEL-codes: D14 I32 O12 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-afr and nep-dev
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2015006

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