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Abstract
In economic studies, household economic status is usually proxied by measures
of consumption or income. In recent years, several studies have advanced an
asset-based index as an alternative measure of wealth status. In most studies,
the asset-based wealth index is constructed with a standard list of assets
comprising household ownership of consumer durables, the characteristics of the
household’s dwelling and sometimes household landownership.
Although a standard list may be useful when comparing households across
countries or urban and rural residents in one country, the assets included may not
always be relevant for studies focussing on rural areas or a particular rural area
only. This paper addresses the question what assets should be included in the
wealth index to the best reflect long-term economic status in rural Ethiopia. We
use data from the Ethiopian Rural Household Survey (ERHS) collected in 1994
and 1995 to construct several asset-based wealth indices. We find not all
standard assets are relevant locally and signs and heights of factor loadings differ
substantially between localities, supporting the case of specified (local) asset
listings. The specified asset index performs best compared to other asset indices
when considering the distribution of food security across wealth quintiles and is at
least as good a predictor of food security as per capita consumption measure for
the same households