Can Urbanization Improve Household Welfare? Evidence from Ethiopia

Tsega Gebrekristos Mezgebo, Ethiopian Civil Service University
Kibrom Araya Abay, international livestock research institute
Meron Endale, private consultant

Despite pieces of evidence indicating Africa is urbanizing differently, empirical evaluations of urbanization on households’ welfare in Africa remains scant. We merged LSMS-ISA household data and satellite-based night light intensity data to investigate the welfare implication of recent urbanization trends in Ethiopia. Fixed effect estimation results show that urban growth, measured by night light intensity, is associated with welfare improvement. This pattern holds for both welfare and intermediate labour outcomes of households. We find that one unit increase in night light intensity is associated with about 2 percent improvement in household welfare. Similarly, urban growth improves households’ engagement in non-farm economic activities. However, we also find that the real price of food items increased suggesting urban expansion may trigger welfare inequality among households living in a specific community. Our results have important implications in terms of informing public policy debates on the consequences and implication of urban expansion in Africa.