Modeling the determinants of rural household poverty: evidence from Ethiopia

Ethiopia is undoubtedly among the poorest nations in the World in which poverty persists at debilitating levels and hence becomes longstanding problem over periods. based on the Ethiopian government's 2004/05 Household Income and Consumption Expenditure Survey (HICES) indicates that the incidence of poverty in rural and urban areas with the poverty head count ratio is being 39.3% and 35.1% respectively. Thus, The fundamental question that comes in the fore front is not are we really poor, just because we are, but what makes we still poor and what factors determine we to be poor. This study is, therefore, aims to identifying forces that make poverty to persist overtime and analyzing the reasons why their deprivation persists. The study employed rural household survey questionnaire based on income and expenditure dataset of the 400 sample households from four study whereas using a two stage random sampling method proportionate to size. Data on the demographic, socio-economic and institutional characteristics of the sample households are also collected so as to correlate them with the poverty status of sample rural households. Once the nature of data and method of sampling are identified, an econometric model of binary choice probit regression is used to analyze the determinants of household poverty status. The result of the binary probit regression revealed that variables such as age of household head, adult equivalent household size and religion of household head have significant positive effects on poverty status of the households, which means their increase worsens households’ poverty. Male headship, age square of household head, mean education of household, food aid, access to modern inputs, agricultural income per adult, social capital in terms of membership in social institutions and number of social institutions and ownership of durable goods, On the other hand, have significant negative effects which indicates that they contribute for poverty reduction. Among these variables, adult equivalent household size, food aid and social capital explained as number of social institutions that the household is a member of are the most important determinants of household poverty which explained the probability of falling into poverty. As a result, in most cases rural households in the study areas are facing adverse demographic and socio-economic composition which in turn increases the likelihood of falling into poverty. Therefore, the identified factors those significantly determine poverty status of the rural households in the study areas are worth considering as a guide for policymakers and any other concerned bodies in their formulation and implementation of poverty reduction strategies.