Abstract

Using panel data from villages in rural Ethiopia, the paper studies the determinants of consumption growth (1989-97), based on a microgrowth model, controlling for heterogeneity. Consumption grew substantially, but with diverse experiences across villages and individuals. A key focus is on whether shocks affect growth. Rainfall shocks have a substantial impact on consumption growth, and its impact presists for many years. There also appears to be a significant, persistent growth impact from the largescale famine in the 1980s, as well as substantial externalities from the presence of road infrastructure. The findings related to the persistent effects of rainfall shocks and the famine crisis imply that welfare losses due to the lack of insurance and protection measures are well beyond the welfare cost of short term consumption fluctuations. JEL Classification: I32, O12, Q12 Paper prepared for a conference at the International Monetary Fund, May 2002. I am grateful for useful comments from Jan Willem Gunning, Cathy Pattillo, Martin Ravallion and seminar participants at Oxford, WIDER/UNU and the World Bank. All errors are mine.

Citations