ABSTRACT
This chapter analyzes the growth experience in a number of villages in rural Ethiopia using a household panel data set covering 1989–1997. It focuses on the role of shocks, such as drought and famine, on poverty persistence as well as on identifying the correlates of welfare improvements. The chapter presents the theoretical and empirical framework used. The framework used is a standard empirical growth model, allowing for transitional dynamics, inspired by Mankiw et al. The framework and equations will be specified in more detail as an econometric model to take to the data. The chapter utilizes a reduced-form econometric approach to test for the impact of uninsured risk. Measured recent and past shocks are directly introduced in the regressions, and their cumulative impact is quantified. Persistence of shocks on growth and levels of income is not the same as identifying whether there is ever any recovery from these shocks in terms of outcome levels.
