Ethiopia is one of the poorest countries in the world with a per capita income of just over US$100. Understanding the causes of the country's widespread poverty is of the utmost importance. Until recently, however, very little household data was available. This study deals with the many aspects of poverty and income distribution in Ethiopia. It analyses the determinants of poverty and how its conditions have changed in both rural and urban areas over time. Rural and urban poverty profiles and the dynamics of poverty are examined, measurements taken of consumption poverty are compared with individual perceptions of poverty, and an analysis is made of the distribution of intra-household expenditure and the dynamics of income distribution. In addition, the functioning of the urban labour market returns to education, and the effects of education on household welfare are investigated. Finally, there is extensive discussion of the wide range of policies that need to be coordinated for poverty reduction in Ethiopia. Arne Bigsten is Professor of Development Economics at the Gothenburg University. His research concerns income distribution, poverty and growth, rural and industrial development, trade and aid, and economic policy in Eastern Africa and China Bereket Kebede has a BA in economics from Addis Ababa University and MSc and DPhil degrees from Oxford University. He has worked as a lecturer at Addis Ababa University and as a postdoctoral fellow at the University of Bath. He is currently lecturing at the School of Development Studies, University of East Anglia. Abebe Shimeles received a BA from Addis Ababa University and an MA from the Delhi School of Economics, University of Delhi. He is currently working on a PhD thesis on poverty in Ethiopia at the Gothenburg University. Apart from his academic work, he has also worked for the Ethiopian government, NGOs, and for the Economic Commission for Africa.