concessions, and conflicts.<sup>4</sup> Potential vulnerability is compounded by low levels of human capital accumulation and weak governance. In such a context, characterized by repeated droughts and a high volatility in consumption, standard poverty measures such as the poverty headcount rate only assess the current poverty status of a household but are not necessarily an indicator of future poverty status. For example, the current consumption of a household may be above the poverty line and thus they are classified as non-poor, but due to the high likelihood of shocks between the current and next period, the same household may fall below the poverty line in the next period. Such a household is “vulnerable to poverty” even though their current consumption is above the poverty line. In general, the extent of vulnerability to poverty depends on the risk management strategies of households and communities, the abilities of households to cope after the incidence of the shock (e.g., assets owned, herd size, social capital), and access to safety nets.<sup>5</sup> Understanding the extent and the sources of vulnerability in the drought-prone lowlands has important policy implications.

While the profile of poverty and its evolution over time are relatively well documented in Ethiopia, there is very limited evidence on the extent and nature of vulnerability to poverty. The available studies either focus on a specific shock (such as drought or price rise) and/or do not provide any estimates for the drought-prone lowlands. Hill and Porter (2017), for example, study vulnerability to drought and food price shocks and its determinants using historical climatic and price data along a nationally representative household survey from 2005 and 2011. They find that drought and price increases lead to significant reduction in consumption and hence vulnerability to poverty. Demissie and Kassie (2017) study vulnerability in rural areas by cross-sectionally estimating the probability of households’ consumption falling below the poverty line in the future and defining a household as vulnerable if the probability is higher than a certain threshold. Using the 2011 Household Consumption Expenditure Survey (HCES) and Welfare Monitoring Survey (WMS), they find that vulnerability to poverty in 2011 was 54 percent in rural Ethiopia as opposed to a poverty rate of 31 percent.

> 4 For a detailed discussion on the shocks in the drought-prone lowlands, refer to World Bank and DFID (2019).

> 5 Vulnerability to poverty is related to the concept of “resilience” which concerns the longer time-path of well-being in the face of shocks, and especially the likelihood that any adverse outcomes of either risk avoidance or a realized shock do not persist for an extended period. For example, a nonpoor household may be vulnerable to becoming poor due to job loss yet be quite resilient if the prospects for finding follow-on employment offering similar compensation are high and/or formal or informal safety-net programs reliably provide adequate support reasonably promptly. In statistical terms, a nonpoor household with high conditional variance of income might be both vulnerable (to becoming poor) and resilient (because the poverty is sufficiently low in duration, intensity, and/or likelihood) (Barrett and Constas, 2014).

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