EFFECT OF INFRASTRUCTURE DEVELOPMENT ON RURAL POVERTY REDUCTION IN ETHIOPIA: PANEL DATA ANALYSIS

Abstract

The purpose of this study is to explore the effect of infrastructuredevelopment on rural poverty in Ethiopia. The effect of infrastructure development and rural poverty is examined by using panel data from the period 1995/96 to 2016. The data was sourced from the National Bank of Ethiopia, Central Statics Agency, and World Bank. To undertake this study, eleven regions of the country were used. The study used both descriptive statistics and econometric analyses. The descriptive statistical analysis displays the trend of infrastructure development on rural poverty reduction and the improvement of rural poverty is largely concerned with raising the quality of life of people living standards of the society. The Random effect model was used for econometrics analysis in order to show the effect of rural poverty. In analyzing the effect of infrastructure development on rural poverty in Ethiopia, the study were applied Unit root tests, and Granger causality test. Based on the findings, the study highlights major variable such as water, education,inflation and government expenditure has a significant effect on rural povertyreduction. The estimation result suggested that, an increasing infrastructure development reduces rural poverty. The causality estimation shows both electrification and road has a positive effect infrastructure development on rural poverty reduction. Furthermore, the study found unidirectional causal relationship moving from electrification and road while there is no causality between foreign direct investment, inflation, government expenditure, education and rural water with rural poverty. There is no bidirectional relation between variables. This finding is consistent with the standard economic theory. Based on the findings the study highlights major issues policymakers should give due attention towards the effective formulation and implementation of infrastructure development policies toreduce and eliminate rural poverty.