Rural households Vulnerability to Covariate and Idiosyncratic Shocks using multilevel longitudinal Model: Evidence from Ethiopia

Abstract The economic reports on income inequality, poverty, and other welfare indicators are relevant if it was supported by the evidence of income traps because rural households in developing countries were frequently hit by several shocks. This study intended to investigate the households’ vulnerability to covariate and idiosyncratic shocks in Ethiopia using three waves of the household panel survey for the period of 2011-2016. The study applied a three-level mixed effect model for analysis. The result of the three-level mixed effect model points out that both covariate and idiosyncratic shocks) were found to influence household consumption and covariate shocks are a relatively larger and more significant effect on households’ consumption than idiosyncratic shocks. Based on the finding of this study, it is suggested that the implementation of different policies that address factors contributing vulnerability to covariate and idiosyncratic shocks of rural households in Ethiopia.