Distributional Consequence of Trade Exposure in Rural Ethiopia: A Household Level Analysis

The paper attempts to examine the determinants of income inequality, and the interrelationship between cultivation of cash crops and the existing income inequity in the rural Ethiopia from 1994-2000 applying the regression-based decomposition with Shapley value Decomposition of Shorrocks(1999) using the ERHS of Department of Economics, AAU. The result indicates that household size, dependency ratio and age of the head of the household in the family affect the per-capita consumption/income negatively. Producing exportable items contribute positively to the household's per-capita income. Per-capita land holding, credit facility, and proportion of working adults (both male and female) impact consumption expenditure/income positively. Male headed households have higher income compared to female headed. The decomposition result reveals that none of the included variables in the model are found to be equalizing, meaning that each of the variables exacerbates income inequality. Per-capita land holding, household size and location are the major contributor to the overall inequality.