# I. Introduction

Global poverty, as measured by the international extreme poverty line of US$1.90 a day, is becoming increasingly concentrated in Sub-Saharan Africa. It is also increasingly concentrated among households engaged in subsistence agriculture in environments characterized by uncertainty from conflict, vagaries of the weather and international food price fluctuations (World Bank 2016). Understanding how to achieve sustainable increases in household incomes in this context is key to ending extreme poverty.

Uganda offers important lessons in this regard. Uganda experienced conflict, drought and price volatility in its most important agricultural commodities in the decade from 2003 to 2013. This was also a decade in which Uganda recorded impressive rates of poverty reduction. Uganda saw the second fastest percentage point reduction in extreme poverty per year in Sub-Saharan Africa.<sup>2</sup> The proportion of the Ugandan population living beneath US$1.90 a day fell from 62.2 percent in 2003 to 32.2 percent in 2013. Understanding the drivers of this reduction is important both for offering lessons on how to end extreme poverty in Uganda, but also for other countries in the region that have not experienced such a remarkable reduction in poverty.

Understanding the drivers of poverty reduction is a complex task, and an analysis of observational data does not always allow the causes of this progress to be uncovered. Nevertheless, careful analysis of a nationally representative panel data set collected from 2006 to 2012 in combination with data on conflict events, weather and prices allows us to describe the type of income growth households experienced and to assess the importance of these external events in determining progress.

Uganda’s progress in reducing poverty in earlier years from 1993 to 2006 is a remarkable story of success that has been well told. Annual reductions in the national poverty rate of 1.9 percentage points resulted from the restoration of peace and stability to much of the country after Yoweri Museveni came in to power in 1986, the series of economic liberalization reforms that were implemented in the 1990s (such as coffee marketing reforms), and the investments by households and firms that these encouraged (see for example, Collier and Reinika 2003, Appleton 2004, Deininger and Okidi 2004). The narrative of Uganda’s continued, albeit slightly slower, progress in reducing poverty since 2006 is less familiar. This was a period in which growth started to slow as the gains from the reforms were fully realized, and weak infrastructure and corruption increasingly constrained private sector competitiveness (World Bank 2015).

In this paper we use a nationally representative panel data set of 2,356 Ugandan households visited four times between 2006 and 2012 to document the type of income growth they experienced. We take advantage of the panel nature of the data to control for unobserved, time-invariant, household characteristics and analyze the degree to which income growth was driven by exogenous changes in prices, weather and the cessation of conflict during the period considered. We utilize the methods outlined in Dell et al. (2014) in which the impact of weather shocks is identified by using panel data and including household fixed effects to disentangle the impact of the shock from the impact of omitted variables which could be causing bias. This framework has been used to analyze the relationship between weather and household welfare outcomes in Munshi (2003), Dercon (2004), Yang and Choi (2007), Thomas et al. (2012), Anttila-Hughes and Hsiang (2013) and Hill and Porter

> 2 Uganda reduced the extreme poverty rate by 2.9 percentage points a year, second only to Chad, which reduced the extreme poverty rate by 3.1 percentage points per year. This is using poverty numbers reported in Povcalnet as of January 2016, and using the surveys deemed comparable by World Bank 2016.

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