Modeling Livelihood Choice and Poverty Traps

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Modeling Livelihood Choice and Poverty Traps

• Chris Barrett and Larry Blume
• Cornell University

March 11, 2003 BASIS CRSP Project Stakeholder
Consultation Antananarivo, Madagascar
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• The challenge of poverty reduction
• 20 of world population lives in extreme poverty,
  on less than 1/day per person
• 45-50 of Sub-Saharan Africa for past 15 years
• increasing incomes of the extremely poor by
  1/day will require an extra 450 billion/year,
  not counting income gains to others
• hence the need for strategic focus based on a
  clear conceptualization of the nature and
  causality of extreme poverty

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Emerging empirical perspectives on poverty
Need to move beyond traditional, cross-sectional,
snapshot view (e.g., 69.6 of Malagasy
population below poverty line) Emphasize an
emerging, dynamic, video view that
distinguishes between chronic and transitory
poverty based on nature and duration of
poverty Causality and policy implications of the
two differ markedly Chronic or persistent
poverty implies the existence of poverty traps,
which depend on the existence of threshold
effects researchers need to identify these and
policymakers need to act on them.
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Poverty dynamics Some crude comparisons
Not just magnitude, but nature and duration of
poverty differ
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Theoretical foundations of poverty traps

• Blend formal economic literature and
  multidisciplinary literatures on rural
  livelihoods and technology adoption
• Welfare as determined by livelihoods, some of
  which offer high returns, some of which offer
  only low returns.
• Livelihoods are chosen and evolve conditional on
  asset holdings and the economic and biophysical
  environment one faces
• So why do people persist in choosing low return
  livelihoods?

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The static view multiple livelihoods coexist
Keys intercepts and curvature of return functions
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Fits key empirical regularities

• Distinct livelihood strategies often yield clear
  welfare orderings
• Welfare orderings of livelihood strategies appear
  strongly related to barriers to entry into more
  remunerative strategies.
• Initial asset holdings affect income growth at
  all levels

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The dynamic view Poverty traps
Each livelihood strategy has its own accumulation
path dynamic equilibrium Transitions emerge
where switching to another strategy is
optimal Traps emerge where a switch is not optimal
Poverty traps exist because of crucial thresholds
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An Ethiopian pastoralist example
17-year herd dynamics data on Boran herders
suggest a low-level equilibrium trap below 10-12
head/hh with a high-level equilibrium of 40-60
head/hh (Lybbert et al. 2002)
Transhumant livestock production
Sedentary livestock production
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The policy implications of poverty traps
Past disadvantage can be persistent Transitory
policy interventions can have durable
effects Targeting of interventions
matters Challenge of reducing chronic poverty
revolves around finding ways to remove or
transcend thresholds that limit accumulation and
livelihood access - increasing asset
holdings - improving access to more productive
markets and technologies (including transition
technologies) - reducing exposure to shocks
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Thank you!We welcome your comments and
suggestions