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Poverty dynamics in Nairobi's slums: testing for true state dependence and heterogeneity effects

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  • FAYE Ousmane
  • ISLAM Nizamul
  • ZULU Eliya

Abstract

We investigate the factors underlying poverty transitions in Nairobi?s slums focusing on whether differences in characteristics make some individuals more prone to enter poverty and persist in, or whether past experience of poverty matters on future poverty situations. Answers to these issues are crucial for designing effective and successful poverty alleviation policies in informal residential settlements in Africa. The paper uses an endogenous switching model, which accounts for initial conditions, non-random attrition, and unobserved heterogeneity. The estimations are based on a two-wave sample of a panel dataset from the Nairobi Urban Health and Demographic Surveillance System (NUHDSS), the first urban-based Health and Demographic Surveillance Systems (HDSS) in Africa. Estimation results indicate that true state dependence (TSD) constitutes the major factor driving poverty persistence. There is little heterogeneity effects; only 10 percent of poverty persistence is likely due to heterogeneity. Moreover, even when household and individual observed characteristics differ notably, the TSD size remains very large. This implies that active anti-poverty programs aimed at breaking the cycle of poverty constitute the most appropriate policies for taking people out of poverty and preventing them to fall back in. Indeed, this does not exclude policies focusing on individual heterogeneities. Active policies for improving individual?s education, personal skills and capacities, or living environment would also allow preventing people entering poverty or persisting in.

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Bibliographic Info

Paper provided by CEPS/INSTEAD in its series CEPS/INSTEAD Working Paper Series with number 2011-56.

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Length: 32 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:irs:cepswp:2011-56

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Keywords: Poverty dynamics; state dependence; unobserved heterogeneity; attrition; simulated maximum likelihood; urban poverty;

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References

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  1. Bigsten, Arne & Shimeles, Abebe, 2008. "The persistence of urban poverty in Ethiopia: A tale of two measurements," Working Papers in Economics, University of Gothenburg, Department of Economics 283, University of Gothenburg, Department of Economics.
  2. Donatien Beguy & Philippe Bocquier & Eliya Msiyaphazi Zulu, 2010. "Circular migration patterns and determinants in Nairobi slum settlements," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 23(20), pages 549-586, September.
  3. Cappellari, Lorenzo & Jenkins, Stephen P., 2002. "Modelling low income transitions," ISER Working Paper Series 2002-08, Institute for Social and Economic Research.
  4. Francesco Devicienti, 2002. "Poverty persistence in Britain: A multivariate analysis using the BHPS, 1991–1997," Journal of Economics, Springer, Springer, vol. 9(1), pages 307-340, December.
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  6. Stewart, Mark B & Swaffield, Joanna K, 1999. "Low Pay Dynamics and Transition Probabilities," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 66(261), pages 23-42, February.
  7. Arulampalam, Wiji & Booth, Alison L & Taylor, Mark P, 2000. "Unemployment Persistence," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 24-50, January.
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  9. FAYE Ousmane & BASCHIERI Angela & FALKINGHAM Jane & MUINDI Kanyiva, 2010. "Hunger and Food Insecurity in Nairobi's Slums: An assessment using IRT models'," CEPS/INSTEAD Working Paper Series, CEPS/INSTEAD 2010-33, CEPS/INSTEAD.
  10. Islam, Nizamul & Shimeles, Abebe, 2007. "Poverty dynamics in Ethiopia: state dependence," Working Papers in Economics, University of Gothenburg, Department of Economics 260, University of Gothenburg, Department of Economics.
  11. Ambra Poggi, 2003. "Does persistence of social exclusion exist in Spain?," Working Papers, Department of Applied Economics at Universitat Autonoma of Barcelona wpdea0308, Department of Applied Economics at Universitat Autonoma of Barcelona.
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  13. Bokosi, Fanwell Kenala, 2006. "Household Poverty Dynamics in Malawi," MPRA Paper 1222, University Library of Munich, Germany.
  14. Ravallion, Martin, 2001. "On the urbanization of poverty," Policy Research Working Paper Series, The World Bank 2586, The World Bank.
  15. Martin Biewen, 2009. "Measuring state dependence in individual poverty histories when there is feedback to employment status and household composition," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 24(7), pages 1095-1116.
  16. Lorenzo Cappellari & Stephen P. Jemkins, 2002. "Who Stays Poor? Who Becomes Poor? Evidence from the British Household Panel Survey," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(478), pages C60-C67, March.
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Cited by:
  1. Gaspart, Frédéric & Thomas, Anne-Claire, 2012. "Does poverty trap rural Malagasy households?," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/10594, Paris Dauphine University.
  2. Sara Ayllón, 2013. "Understanding poverty persistence in Spain," SERIEs, Spanish Economic Association, Spanish Economic Association, vol. 4(2), pages 201-233, June.
  3. Frédéric Gaspart & Anne-Claire Thomas, 2012. "Does poverty trap rural Malagasy households?," Working Papers, DIAL (Développement, Institutions et Mondialisation) DT/2012/07, DIAL (Développement, Institutions et Mondialisation).
  4. FUSCO Alessio & ISLAM Nizamul, 2012. "Understanding the drivers of low income transitions in Luxembourg," CEPS/INSTEAD Working Paper Series, CEPS/INSTEAD 2012-31, CEPS/INSTEAD.

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