Does Poverty Trap Rural Malagasy Households?

This paper contributes to the understanding of the persistently high poverty rates in rural Madagascar. It tests the existence of poverty traps thanks to a Markovian poverty transition model where past poverty is allowed to have either a slope or an intercept effect on the current poverty risk. An original and large household panel data survey covering the period 1996–2006 is used. Results clearly indicate that poverty is creating a vicious circle leading to a poverty trap. These results encourage the implementation of short-run poverty reduction policies including safety nets, cash transfers, cash for work, and short term credits.