Rural household income mobility in Ethiopia: Dimensions, drivers and policy

Abstract

Welfare dynamics studies are useful in understanding how individuals, families, society, and a country are organised. For the last two decades, Ethiopia’s economic reports on income disparity, poverty, and other welfare metrics have been hopeful and controversial. It is crucial to understand how rural households of various income levels perform over time and income mobility. Income mobility can be observed as a change in position over time between two income vectors, with some climbing and others sliding down and changing places at various rates. This study, therefore, explored the rural households’ income mobility in Ethiopia using three waves of the Living Standards Measurement Study-Integrated Survey on Agriculture (LSMS-ISA) collected from 2011 to 2016. The Shorrocks rigidity index, transition probability matrix, Fields, and Ok methods were employed to analyse the relative and absolute income mobility. The logit model with conditional fixed effect was used to assess the drivers of individual households’ income mobility and the multinomial logit model with conditional fixed effect as an alternative model. Based on the finding of this study, it is suggested to implement different policies targeting income growth to shorten mobility gaps and address factors contributing to downward income mobility in rural households in Ethiopia are necessary.