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ETHIOPIA 131


expected, the rural poverty rate is similar to the national poverty rate, because more than 80 percent of the population lives in rural areas. The rural poverty rate is 39.3 percent, and the urban rate is slightly lower (35.1 percent). It is widely anticipated that Ethiopia is unlikely to meet the fi rst Millennium


Development Goal of halving poverty by 2015, which requires the poverty rate fall to 23 percent by 2015. We fi rst use the Ethiopian model to simulate baseline poverty reduction, consistent with the baseline growth simulation. According to our results, the national poverty rate will fall to 28.6 percent by 2015 (Table 5.8). Obviously, Ethiopia needs to not only accelerate the level of growth but also fi nd ways to en- hance the benefi ts of growth for its poor. In other words, it is important to identify the composition of growth that is most effective at reducing poverty. In this regard, it is necessary to consider the relative importance of agriculture and industry in helping the country signifi cantly reduce poverty. Using the same six scenarios discussed above, the growth–poverty linkages are used to compare the effectiveness of additional growth in reducing poverty under different growth assumptions. The poverty–growth elasticity is calculated for each scenario based on growth in total GDP rather than on the sector’s GDP. Table 5.8 shows the poverty rate by 2015 in each scenario. For example, the national rate falls to 28.6 percent in 2015 in the model’s baseline, and the rural and urban poverty rates fall to 29.6 and 23.5 percent, respectively. With one exception, all poverty rates fall more in the six accelerated growth scenarios. The national poverty rate falls to 23.9 percent in 2015 in the sixth growth scenario (all sectors combined)—a poverty rate that nearly achieves the country’s fi rst Millennium Development Goal. The second panel of Table 5.8 reports the additional number of people lifted


above the poverty line by 2015 in each growth scenario. About 25 million people were living below the poverty line in 2005. The baseline scenario lowers this number to 24 million. Considering that the population will grow by 19.5 to 20 million over the 10-year simulation period (with a 2.7 percent population growth rate), the decline in the absolute number of poor under the baseline seems to be an optimistic scenario. The model results also indicate that about 60 percent of the reduction in the number of poor occurs in rural areas (not shown in the table). The model there- fore reports more optimistic poverty reduction in urban areas, where the poverty rate falls to 23.5 percent by 2015—an 11.6 percentage point reduction from its level in 2005. The fi nal row of the table reports poverty–growth elasticity, which was 1.13 in the baseline. We have mentioned in previous subsections that this elasticity is higher than that calculated using historical data, but it is comparable to those of other countries derived using similar methods. We now assess how different sources of growth affect poverty reduction rates dif-


ferentially. We start with the agriculture-led and nonagriculture-led scenarios. As dis- cussed above, the annual GDP growth rate is 6.8 and 7.2 percent in the agriculture-led


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