Poverty Traps and Institutions in Ethiopia
Abstract: his paper tests for nonlinearity in households' income dynamics using a decade-long rural household panel survey dataset from Ethiopia. The paper argues that non-linearity in income dynamics could arise from the historical dynamics of institutions, and supporting evidence is provided from Ethiopian history. The empirical results support non-linearity in income dynamics and hence the existence of poverty traps. The comparative static analysis of the empirical results shows the importance of policy interventions in terms of breaking out of the poverty trap.
