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Abstract
This paper attempts to assess the link between poverty and efficiency in
Ethiopia. Based on 214 households drawn from eight Peasant Associations
(PAs) from two zones in Ethiopia’s Amhara National Regional State, the study
measures the levels of poverty and efficiency, and assessed the link between
the two. Both objective and subjective measures were used to measure the
level of poverty, which was found to be 28% and 27% by both measures, respectively.
While 35.6% of households were found to be poor in relative terms
(using the Cost-of-Basic-Needs approach), 76.4% were poor in terms of the
one-dollar-a-day absolute measure of poverty. The study also shows that there
was wide variation in the level of poverty between the sample districts. The
stochastic frontier distance function with variable return to scale specification
reveals that all input variables, with the exception of ox power, significantly
determine the efficient level of output. Whereas the average efficiency score
of sample households was 62.8%, indicating the existence of technical inefficiency
among farmers in the study areas, the mean efficiency score of poor
and non-poor households was found to be 58.3% and 74.4%, respectively.
The logistic regression also reveals that efficiency plays an important role
in explaining the observed poverty incidences. Prediction of the marginal
effects of a 10% improvement in efficiency reduced the probability of being
poor by about 4%, while simulation of the effect of improved efficiency on
poverty indicates that 14.1% of the poor households could get out of poverty
by attaining a 25% improvement in the existing efficiency levels. The implication
for policy is that improving access to resources without ensuring their
efficient utilization could not have the desired impact in reducing poverty.