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Most studies examining the dynamics of welfare have found large fluctuations in consumption over relatively short periods, suggesting substantial short-run movements in and out of poverty. The consequence is that cross-section poverty research may not be able to identify the poor. In this study we explore this short-run variability further. We use a data set on a panel of 1450 households in different communities in rural Ethiopia, surveyed thrice, over 18 months. On average year-to-year poverty is very similar. However, we find high variability in consumption and poverty over the seasons and year-by-year. Econometric analysis suggests that consumption is affected by idiosyncratic and common shocks, including rainfall and household-specific crop failure, while households respond to seasonal incentives related to changing labour demand and prices. The results imply that a larger number of households are vulnerable to shocks than implied by the standard poverty statistics, while some of the non-poor in these statistics are in fact otherwise poor households temporally boosting their consumption as an optimal response to changing seasonal incentives.
I. INTRODUCTION
In the last two decades there has been a rapid increase in the availability of large data sets for quantitative poverty measurement in developing countries. As a consequence quantitative poverty measures based on consumption or income are available for most countries and used for a number of policy purposes, which include constructing poverty profiles (e.g., Boateng et al., 1992] and making international comparisons. The standard quantitative approach to poverty measurement is not without its critics, not least from other social sciences (for a discussion, see Booth et al. [1998]). In any case, an important shortcoming of most of the standard poverty studies is the lack of an inter-temporal dimension, so that important questions cannot be addressed. These include whether there is any economic mobility in the society studied? Are the same households poor in each period or are there large movements in and out of poverty? What determines economic mobility? Are long-term factors or short-run circumstances more important in explaining current poverty? In this study, we use panel data from rural Ethiopia to address some of these issues in the dynamics of poverty.
In recent years, some comparable cross-section data sets as well as panel data sets have become available to start...