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Pathways Towards Prosperity in Rural Nicaragua: Why households drop in and out of poverty, and some policy suggestions on how to keep them out


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  • Benjamin Davis

    (Agricultural and Development Economics Division, Food and Agriculture Organization)

  • Marco Stampini


While Nicaragua over the past decade has ranked among the poorest countries in Latin America in terms of per capita GDP, data from the last three LSMS surveys (1993, 1998, and 2001) has shown a consistent, though modest, decline in the incidence of poverty. Nationally, the incidence of poverty among individuals has fallen from 50.3 to 45.8 percent over this period. Most poverty is concentrated in the rural sector (with an incidence of 67.8 percent) and in particular in the Central region (75 percent) (World Bank, 2002a). Given the dynamism of agriculture over the last decade, it is somewhat surprising that the reduction of rural poverty has not been greater. Further, this apparent slow, but stable decline in overall poverty incidence masks active movement at the household level in and out of poverty, particularly in the rural sector. At the household level it is much more difficult to find and explain an overall march towards increased living standards. In this paper we analyze the dynamic of poor households moving in and out of poverty, using panel data from the 1998 and 2001 LSMS surveys. The availability of panel data offers an opportunity to analyze who and how households escaped or fell into poverty. What were the principal exit strategies used by households? What are the major determinants of exiting poverty and remaining in poverty? How do poor rural households achieve prosperity? While we touch on both the rural and urban poor, we concentrate primarily on rural households, given their much larger numbers and greater heterogeneity. We apply a variety of methodologies in our analysis of poverty exit strategies. In Section II we provide some background information on the rural sector in Nicaragua, and in Section III we analyze changes in asset ownership and use as well as poverty status. We analyze who has left and entered poverty and provide a description of their characteristics. Given insufficient data points to separate chronic and transient poverty by econometric means, we will instead characterize these different groups of households in descriptive terms. In Section III we briefly describe the situation of agriculture, agricultural assets, and agrarian institutions, the basis of the rural economy in Nicaragua. Next, in Section IV we use econometric methods to find the determinants of changes in welfare over the panel period as measured by consumption and income. In the conclusions in Section V, we will bring these three types of analysis together and build a matrix of poverty exit paths combined with policy recommendations for specific categories of rural households. Full results can be found in Appendices II, while a detailed discussion of panel data issues, most importantly that of attrition, can be found in Appendix I.

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Bibliographic Info

Paper provided by Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA) in its series Working Papers with number 02-12.

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Length: 57 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:fao:wpaper:0212

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Keywords: Agricultural economics; Agricultural sector; Agricultural structure; Data analysis; Data collection; Household food security; Households; Nicaragua; Poverty; Rural areas; Surveys; Urban rural migration;


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  1. J. Edward Taylor & Antonio Yunez-Naude, 2000. "The Returns from Schooling in a Diversified Rural Economy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 82(2), pages 287-297.
  2. Hausman, Jerry A & Wise, David A, 1979. "Attrition Bias in Experimental and Panel Data: The Gary Income Maintenance Experiment," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 455-73, March.
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Cited by:
  1. Vakis, Renos & Kruger, Diana & Mason, Andrew D., 2004. "Shocks and coffee : lessons from Nicaragua," Social Protection Discussion Papers 30164, The World Bank.
  2. John A. Maluccio, 2007. "The Impact of Conditional Cash Transfers on Consumption and Investment in Nicaragua," Middlebury College Working Paper Series 0722, Middlebury College, Department of Economics.
  3. Bruno, Randolph Luca & Stampini, Marco, 2007. "Joining Panel Data with Cross-Sections for Efficiency Gains: An Application to a Consumption Equation for Nicaragua," IZA Discussion Papers 3231, Institute for the Study of Labor (IZA).
  4. David Lawson & Andy Mckay & John Okidi, 2006. "Poverty persistence and transitions in Uganda: A combined qualitative and quantitative analysis," Journal of Development Studies, Taylor & Francis Journals, vol. 42(7), pages 1225-1251.
  5. Benjamin Davis & Paul Winters & Gero Carletto & Katia Covarrubias & Esteban Quinones & Alberto Zezza & Kostas Stamoulis & Genny Bonomi & Stefania DiGiuseppe, 2007. "Rural Income Generating Activities; A Cross Country Comparison," Working Papers, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA) 07-16, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
  6. World Bank, 2004. "Drivers of Sustainable Rural Growth and Poverty Reduction in Central America : Nicaragua Case Study, Volume 2. Background Papers and Technical Appendices," World Bank Other Operational Studies 14557, The World Bank.
  7. Jakobsen, Kristian Thor, 2012. "In the Eye of the Storm—The Welfare Impacts of a Hurricane," World Development, Elsevier, vol. 40(12), pages 2578-2589.
  8. World Bank, 2004. "Drivers of Sustainable Rural Growth and Poverty Reduction in Central America : Nicaragua Case Study, Volume 1. Executive Summary and Main Text," World Bank Other Operational Studies 14554, The World Bank.
  9. World Bank, 2005. "Shocks and Social Protection : Lessons from the Central American Coffee Crisis, Volume 1, Synthesis of Findings and Implications for Policy," World Bank Other Operational Studies 8435, The World Bank.


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