Effects Of Poverty In Ethiopia

With a significant number of individuals in Ethiopia and other developing countries being largely dependent on agricultural produce as a main source of income, uninsured weather shocks and changes in commodity prices can have significant and adverse impacts on consumption levels. This volatility creates significant uncertainty and consequentially reduces overall welfare. Furthermore, these individuals are typically unable to effectively smooth their income when shocks do occur, due to the lack of available credit which is often required to compensate for low savings. When these negative shocks are experienced, reduction in consumption can often lead to severe negative effects on general health and increases trends in children being removed …show more content…
However, those with significant land holdings are less affected by these adverse rainfall shocks. One can infer from this observation that when there are low crop yields farmers will typically consume produce rather than trade, thus reducing the amount of food available on the market. Furthermore, Czukas, Fafchamps and Udry (1998) state that droughts which affect households’ ability to obtain income from agricultural production subsequently leads to a collapse in demand for local goods and services and thus further damages the local economy. According to Dercon (2002), 78% of households in Ethiopia have undergone some form of hardships within the last 20 years due to harvest failure caused by drought, flooding or frost. In the face of such uncertainty households have developed risk-management (ex ante) and risk-coping (ex post) techniques to deal with adverse shocks (Dercon, …show more content…
Iddir primarily provide funeral cover for members and their family’s, with the aim of covering expenses in the event of a death. This form of insurance seems to be favourable, as the threats from moral hazard and adverse selection seem to be typically lower than that which exists with other forms of insurance. Iddir do tend to offer other forms of informal insurance, for example compensation can be received in the event of a member contracting an illness, destruction of a house, loss of cattle and fire damage among other additional coverages (Dercon, Weerdt, Bold, & Pankhurt, 2006). However, these are observed in far lower frequencies than the traditional funeral cover and are often not available to all members of the iddir. Therefore, it appears as though the communal groups alone are unable to provide adequate coverage required for members to effectively be covered against the adverse shocks which they