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Identifying Asset Poverty Thresholds New methods with an application to Pakistan and Ethiopia


  • Naschold, Felix


Understanding how households escape poverty depends on understanding how they accumulate assets over time. Therefore, identifying the degree of linearity in household asset dynamics, and specifically any potential asset poverty thresholds, is of fundamental interest to the design of poverty reduction policies. If household asset holdings converged unconditionally to a single long run equilibrium, then all poor could be expected to escape poverty over time. In contrast, if there are critical asset thresholds that trap households below the poverty line, then households would need specific assistance to escape poverty. Similarly, the presence of asset poverty thresholds would mean that short term asset shocks could lead to long term destitution, thus highlighting the need for social safety nets. In addition to the direct policy relevance, identifying household asset dynamics and potential asset thresholds presents an interesting methodological challenge to researchers. Potential asset poverty thresholds can only be identified in a framework that allows multiple dynamic equilibria. Any unstable equilibrium points would indicate a potential poverty threshold, above which households are expected to accumulate further and below which households are on a trajectory that makes them poorer over time. The key empirical issue addressed in the paper is whether such threshold points exist in Pakistan and Ethiopia and, if so, where they are located. Methodologically, the paper explores what econometric technique is best suited for this type of analysis. The paper contributes to the small current literature on modeling nonlinear household welfare dynamics in three ways. First, it compares previously used techniques for identifying asset poverty traps by applying them to the same dataset, and examines whether, and how, the choice of estimation technique affects the result. Second, it explores whether other estimation techniques may be more suitable to locate poverty thresholds. Third, it adds the first study for a South Asian country and makes a comparison with Ethiopia. Household assets are combined into a single asset index using two techniques: factor analysis and regression. These indices are used to estimate asset dynamics and locate dynamic asset equilibria, first by nonparametric methods including LOWESS, kernel weighted local regression and spline smoothers, and then by global polynomial parametric techniques. To combine the advantages of nonparametric and parametric techniques - a flexible functional form and the ability to control for covariates, respectively - the paper adapts a mixed model representation of a penalized spline to estimate asset dynamics through a semiparametric partially linear model. This paper identifies a single dynamic asset equilibrium with a slightly concave dynamic asset accumulation path in each country. There is no evidence for multiple dynamic equilibria. This result is robust across econometric methods and across different ways of constructing the asset index. The concave accumulation path means that poorer households recover more slowly from asset shocks. Concavity also implies that greater initial equality of assets would lead to higher growth. Moreover, the dynamic asset equilibria are very low. In Pakistan it is below the average asset holdings of the poor households in the sample. In Ethiopia, the equilibrium is barely above the very low mean. This, together with the slow speed of asset accumulation for the poorest households, suggests that convergence towards the long run equilibrium may be slow and insufficient for rural households in Pakistan and Ethiopia to escape poverty.

Suggested Citation

  • Naschold, Felix, 2005. "Identifying Asset Poverty Thresholds New methods with an application to Pakistan and Ethiopia," 2005 Annual meeting, July 24-27, Providence, RI 19115, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea05:19115
    DOI: 10.22004/ag.econ.19115

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    References listed on IDEAS

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    9. Jalan, Jyotsna & Ravallion, Martin, 2001. "Household income dynamics in rural China," Policy Research Working Paper Series 2706, The World Bank.
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    Cited by:

    1. Hope Michelson & Maria Muñiz & Kyle DeRosa, 2013. "Measuring Socio-economic Status in the Millennium Villages: The Role of Asset Index Choice," Journal of Development Studies, Taylor & Francis Journals, vol. 49(7), pages 917-935, July.
    2. Alejandro López-Feldman & Javier Parada, 2011. "Poverty Dynamics in Rural Mexico: An Analysis Using Four Generations of Poverty Measurement," Working papers DTE 505, CIDE, División de Economía.
    3. Quisumbing, Agnes R., 2011. "Do men and women accumulate assets in different ways?: Evidence from rural Bangladesh," IFPRI discussion papers 1096, International Food Policy Research Institute (IFPRI).
    4. Johnson, Nancy L. & Kovarik, Chiara & Meinzen-Dick, Ruth & Njuki, Jemimah & Quisumbing, Agnes, 2016. "Gender, Assets, and Agricultural Development: Lessons from Eight Projects," World Development, Elsevier, vol. 83(C), pages 295-311.
    5. Giesbert, Lena & Schindler, Kati, 2012. "Assets, Shocks, and Poverty Traps in Rural Mozambique," World Development, Elsevier, vol. 40(8), pages 1594-1609.
    6. Takashi Kurosaki, 2013. "Dynamics of Household Assets and Income Shocks in the Long-run Process of Economic Development: The Case of Rural Pakistan," Asian Development Review, MIT Press, vol. 30(2), pages 76-109, September.
    7. Swati Dutta, 2015. "Identifying Single or Multiple Poverty Trap: An Application to Indian Household Panel Data," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 120(1), pages 157-179, January.
    8. Andy McKay & Emilie Perge, 2013. "How Strong is the Evidence for the Existence of Poverty Traps? A Multicountry Assessment," Journal of Development Studies, Taylor & Francis Journals, vol. 49(7), pages 877-897, July.
    9. Kurosaki, Takashi, 2013. "Dynamics of Household Assets and Income Shocks in the Long-run Process of Economic Development: The Case of Rural Pakistan," PRIMCED Discussion Paper Series 39, Institute of Economic Research, Hitotsubashi University.
    10. Dillon, Andrew & Quiñones, Esteban J., 2010. "Asset dynamics in Northern Nigeria:," IFPRI discussion papers 1049, International Food Policy Research Institute (IFPRI).
    11. Naschold, Felix, 2012. "“The Poor Stay Poor”: Household Asset Poverty Traps in Rural Semi-Arid India," World Development, Elsevier, vol. 40(10), pages 2033-2043.
    12. 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.
    13. repec:bla:devpol:v:36:y:2018:i:1:p:3-34 is not listed on IDEAS
    14. Quisumbing, Agnes R. & Kumar, Neha & Behrman, Julia A., 2011. "Do shocks affect men's and women's assets differently?: A review of literature and new evidence from Bangladesh and Uganda," IFPRI discussion papers 1113, International Food Policy Research Institute (IFPRI).
    15. repec:ags:eeaeje:259295 is not listed on IDEAS

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