Journal of African Economies Advance Access originally published online on April 16, 2007
Journal of African Economies 2008 17(1):1-33; doi:10.1093/jae/ejm003
Prices and Poverty in Urban Ethiopia1
Discipline of Economics, University of Sydney, Merewether H04, NSW 2006, Australia
* Corresponding author: Tesfaye Alemayehu Gebremedhin, Discipline of Economics, Merewether H04, NSW 2006, Australia; e-mail: tgeb0150{at}mail.usyd.edu.au
Poverty is an ongoing issue in Ethiopia. The identification of policy options to address the problem requires that poverty be measured accurately. One of the most important ingredients in the measurement of poverty is price. The magnitude of poverty is affected by how cost of living differences across time and regions are adjusted. This paper derives a set of price indexes for urban Ethiopia, using data from four household surveys conducted between 1994 and 2000. The results indicate that the cities of Dire Dawa and Mekelle are the two most expensive cities, while Jimma and Bahir Dar are the least expensive. The findings also confirm that poverty is high in urban Ethiopia, with poverty head count of over 40%. Poverty estimates and profile derived using poverty lines as cost of living deflators are similar to those obtained from preferred price indexes developed in the study. However, country-level consumer price indexes, which do not adjust for spatial cost of living differences, may result in misleading estimates and poverty profile. This may have implications for the allocation of resources for poverty alleviation purposes.
JEL Classification: C43, D12, D60
1 This article stems from Tesfaye Alemayehu Gebremedhin's doctoral thesis supervised by Dr Stephen Whelan and funded by the University of Sydney. The article has greatly benefited from discussions with Dr Abbi Kedir of the University of Leicester and Dr Yohannes Kinfu of World Health Organization (WHO). We also thank the two anonymous reviewers of this article for their useful comments, and the Department of Economics of Addis Ababa University for access to the data.