This paper deals with consumption dynamics and its effects on poverty. An econometric model is proposed in which changes in consumption across time are seen as fluctuations around the level of consumption that each family can sustain in the long term. The advantages of this approach are twofold. First, it allows identification of the main determinants of changes in poverty. Second, it allows distinguishing between chronic and transient poverty, by defining as chronically poor those households whose level of consumption sustainable in the long term lies below the poverty line. This definition of chronic poverty represents a change with respect to previous works on the subject, in which chronic poverty is defined with reference to the average level of consumption (or income) observed at the family level along the temporal interval of the panel. The innovation of our proposal lies in the fact that all the information from the panel data set, relative to all households, is exploited in order to identify which level of consumption each family is tending toward through time. Furthermore, our definition of chronic poverty allows one to identify four different groups of families that differ by level of observed consumption and by potential to generate income for consumption. The four groups are characterized by different incidences of chronic and transient poverty, and hence require different kinds of anti-poverty policies and public support. Data from two Living Standards Measurement Surveys (LSMS) carried out by the World Bank in Nicaragua in 1998 and 2001 are used, while accounting for potential problems of attrition.
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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
03-03.
Length: 23 pages Date of creation: 2003 Date of revision: Handle: RePEc:fao:wpaper:0303
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Find related papers by JEL classification: I32 - Health, Education, and Welfare - - Welfare and Poverty - - - Measurement and Analysis of Poverty O54 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Alderman, Harold & Watkins, Susan Cotts & Kohler, Hans-Peter & Maluccio, John A. & Behrman, Jere R., 2000.
"Attrition in longitudinal household survey data,"
FCND briefs
96, International Food Policy Research Institute (IFPRI).
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Other versions:
Harold Alderman & Jere Behrman & Hans-Peter Kohler & John A. Maluccio & Susan Watkins, 2001.
"Attrition in Longitudinal Household Survey Data,"
Demographic Research,
Max Planck Institute for Demographic Research, Rostock, Germany, vol. 5(4), pages 79-124, November.
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