Welfare Dynamics in Rural Kenya and Madagascar

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Welfare Dynamics in Rural Kenya and Madagascar
Christopher B. Barrett, Paswel Marenya, John
McPeak, Bart Minten, Festus Murithi, Willis
Oluoch-Kosura, Frank Place, Jean Claude
Randrianarisoa, Jhon Rasambainarivo and Justine
Wangila   November 15, 2004 USAID BASIS CRSP
Policy Conference Combating Persistent Poverty in
Africa Washington, DC
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Why is poverty so persistent in rural Africa?
The design of appropriate strategies to combat
persistent poverty depend on its origins. Is
poverty something all people naturally grow
out of in time (unconditional convergence)?
implies laissez-faire /macro focus. some
people grow out of in time (conditional
convergence)? implies need for targeted
productivity improvements. some people can be
trapped in perpetually (poverty traps due to
multiple equilibria)? implies need for safety
nets and cargo nets.
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Economic Mobility and Poverty Dynamics
Ultra-Poverty Transition Matrices As measured
against 0.50/day per capita income poverty line
Kenya rural poverty line 0.53 Madagascar
poverty line 0.43
Poverty deepest and most persistent where
agroecology and markets least favorable (remote
rural areas or less favored lands)
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Moving beyond headcount measures
Economic Mobility and Poverty Dynamics

• We want to know the directions and magnitudes of
  welfare change, not just discrete movements
  relative to an arbitrary poverty line.

Annual average percent change in income, by site
and resurveying interval
Key point Short panels may exaggerate economic
mobility. Much year-on-year change is random.
When we look at longer-term transitions, a lot of
stasis look at structural determinants
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Economic Mobility and Poverty Dynamics
Raw data suggests convergence But structural
component suggests multiple equilibria

Blue (red) dashed lines are structural
(stochastic) component of income change
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Summary of Findings on Economic Mobility and
Poverty Dynamics

• Considerable persistence of ultra-poverty with
  low rates of net exit from poverty
• Poverty deepest where agroecology and markets
  least favorable (remote rural areas or less
  favored lands)
• Stochastic component of income appears
  substantial
• Structural component consistent w/existence of
  multiple equilibria
• Data consistent with both the conditional
  convergence and poverty traps hypotheses..

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Why Economic Immobility?

• Explanation 1 Wealth-differentiated risk mgmt

Asset and consumption smoothing among northern
Kenya pastoralists
Associated with locally increasing income returns
to herd size.
Consumption smoothing a luxury enjoyed by the
wealthiest third.
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Why Economic Immobility?

• Explanation 2 Locally increasing returns
• Barriers to entry into higher-return activities
• - educational attainment and social network
  rationing (skilled off-farm employment)
• - labor and liquidity constraints and SRI
• expected result is nonlinear asset dynamics,
  with rapid accumulation beyond key thresholds

Marginal return to hh labor supply and rice area,
Fianarantsoa
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Asset Dynamics with Multiple Equilibria
Asset dynamics appear consistent in the Kenya
sites with multiple equilibria, but low-level
conditional convergence seems to fit the
Madagascar sites better.
Asset Index Dynamics Highland Kenya/Madagascar
Herd Dynamics Northern Kenya Rangelands
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Conclusions and Policy Implications

• Sound policy design and programming requires a
  clear idea of the causal mechanism behind
  persistent poverty.
• No support for the unconditional convergence
  hypothesis.
• Conditional convergence apparent at community
  level in both countries. In Madagascar, the
  evidence points to geographic poverty traps and
  the need for exogenous productivity improvements
  to create path out of poverty.
• Qual-quant evidence most consistent with poverty
  traps hypothesis in rural Kenya. Also need
  multi-dimensional safety nets to protect assets
  to block pathways into poverty (due to health
  shocks, natural disasters, etc.).
• Poverty traps seem to exist due to missing
  financial markets and (i) excessive risk exposure
  and/or (ii) significant barriers to entry to
  remunerative livelihoods.

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Misaotra! Asante! Thank you!