Abstract
This study aims to examine the link between environmental stress, adaptation options and poverty dynamics in Ethiopia. The study relies on three-year panel data collected by ECRC from 825 rural households in the Nile Basin of Ethiopia. Using the linear fixed effects model, the paper finds that weather variability significantly impacts households' welfare. Initially, rising average rainfall positively influences households' per capita spending, while extreme rising average rainfall measured by a squared average rainfall negatively affects per capita expenditure. The anomalies of precipitation and temperature have a significant adverse effect on the total per capita and food expenditures. Findings from multinomial logit model estimation prove that an increase in average rainfall would reduce the likelihood of households falling into transient poverty. In contrast, an increase in temperature would cause an increase in the probability of families falling into transient and chronic poverty. The findings suggest that policymakers and agriculture experts should strive to increase the effectiveness of existing adaptation practices and introduce new adaptation options to protect households from the devastating effects of weather variability.
