Sources of Income Persistence: Evidence from Rural El Salvador
This paper uses a unique panel dataset (1995-2001) of rural El Salvador to investigate the main sources of the persistence and variability of incomes. First we propose an econometric framework where a general dynamic panel model is validly reduced to a simple linear structure with a dynamic covariance structure, which augments considerably the number of degrees of freedom usually lost in the construction of instruments to estimate standard dynamic panel models. Then we investigate the extent to which families are continuously poor due to endowments (observed and unobserved) that yield low income potential or due to systematic income shocks that they are unable to smooth. We find that life-cycle incomes are largely explained by the relatively time-invariant productive characteristics of families and their members such as education, public goods and other assets. Observed income determinants account for about half of income persistence. Controlling for unobserved heterogeneity leaves little room for pure state dependence. Although of second order, high volatility and the inability to insure from shocks is a more important source of variation in incomes than in developed countries. Low income potential is the more likely source of poverty traps in Rural El Salvador. Many of the family endowments are manipulable by policy interventions, although many not in the short term.
|Date of creation:||Jun 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 21- 1466
Web page: http://cedlas.econo.unlp.edu.ar/
More information through EDIRC
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.:
- Costas Meghir & Luigi Pistaferri, 2004.
"Income Variance Dynamics and Heterogeneity,"
Econometric Society, vol. 72(1), pages 1-32, 01.
- Lokshin Michael & Ravallion Martin, 2004. "Household Income Dynamics in Two Transition Economies," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(3), pages 1-33, September.
- Bera, Anil K. & Sosa-Escudero, Walter & Yoon, Mann, 2001.
"Tests for the error component model in the presence of local misspecification,"
Journal of Econometrics,
Elsevier, vol. 101(1), pages 1-23, March.
- Anil Bera & Walter Sosa Escudero & Mann Yoon, 2000. "Test for the Error Component Model in the Presence of Local Misspecification," Department of Economics, Working Papers 022, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
- Anil K. Bera & Walter Sosa Escudero & Mann Yoon, 2000. "Tests for the Error Component Model in the Presence of Local Misspecification," Econometric Society World Congress 2000 Contributed Papers 1888, Econometric Society.
- Gottschalk, Peter & Moffitt, Robert A, 1994. "Welfare Dependence: Concepts, Measures, and Trends," American Economic Review, American Economic Association, vol. 84(2), pages 38-42, May.
- Hendry, David F & Mizon, Grayham E, 1978. "Serial Correlation as a Convenient Simplification, not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England," Economic Journal, Royal Economic Society, vol. 88(351), pages 549-63, September.
- Milton Friedman & Simon Kuznets, 1954. "Income from Independent Professional Practice," NBER Books, National Bureau of Economic Research, Inc, number frie54-1, December.
- Francisca Antman & David McKenzie, 2007.
"Poverty traps and nonlinear income dynamics with measurement error and individual heterogeneity,"
Journal of Development Studies,
Taylor & Francis Journals, vol. 43(6), pages 1057-1083.
- Antman, Francisca & McKenzie, David J., 2005. "Poverty traps and nonlinear income dynamics with measurement error and individual heterogeneity," Policy Research Working Paper Series 3764, The World Bank.
- Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
- Jalan, Jyotsna & Ravallion, Martin, 1999. "Income gains to the poor from workfare - estimates for Argentina's TRABAJAR Program," Policy Research Working Paper Series 2149, The World Bank.
- Abowd, John M & Card, David, 1989.
"On the Covariance Structure of Earnings and Hours Changes,"
Econometric Society, vol. 57(2), pages 411-45, March.
- John M. Abowd & David Card, 1986. "On the Covariance Structure of Earnings and Hours Changes," NBER Working Papers 1832, National Bureau of Economic Research, Inc.
- World Bank, 2005. "El Salvador : Poverty Assessment, Strengthening Social Policy," World Bank Other Operational Studies 8427, The World Bank.
- Horowitz, Joel L & Markatou, Marianthi, 1996. "Semiparametric Estimation of Regression Models for Panel Data," Review of Economic Studies, Wiley Blackwell, vol. 63(1), pages 145-68, January.
- David Newhouse, 2005. "The Persistence of Income Shocks: Evidence from Rural Indonesia," Review of Development Economics, Wiley Blackwell, vol. 9(3), pages 415-433, 08.
- Joel L. Horowitz & Marianthi Markatou, 1993. "Semiparametric Estimation Of Regression Models For Panel Data," Econometrics 9309001, EconWPA.
- Lanjouw, Peter, 2001. "Nonfarm Employment and Poverty in Rural El Salvador," World Development, Elsevier, vol. 29(3), pages 529-547, March.
- Holtz-Eakin, Douglas, 1988. "Testing for individual effects in autoregressive models," Journal of Econometrics, Elsevier, vol. 39(3), pages 297-307, November.
- Lee A. Lillard & Robert J. Willis, 1976.
"Dynamic Aspects of Earnings Mobility,"
NBER Working Papers
0150, National Bureau of Economic Research, Inc.
- Pritchett, Lant & Suryahadi, Asep & Sumarto, Sudarno, 2000. "Quantifying vulnerability to poverty - a proposed measure, applied to Indonesia," Policy Research Working Paper Series 2437, The World Bank.
- Jimenez-Martin, Sergi, 1998. "On the testing of heterogeneity effects in dynamic unbalanced panel data models," Economics Letters, Elsevier, vol. 58(2), pages 157-163, February.
- Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
- Fields, Gary S. & Duval Hernández, Robert & Freije-Rodriguez, Samuel & Sanchez Puerta, Maria Laura, 2007. "Earnings Mobility in Argentina, Mexico, and Venezuela: Testing the Divergence of Earnings and the Symmetry of Mobility Hypotheses," IZA Discussion Papers 3184, Institute for the Study of Labor (IZA).
- Walter Sosa Escudero & Anil K. Bera, 2008. "Tests for Unbalanced Error Component Models Under Local Misspecication," CEDLAS, Working Papers 0065, CEDLAS, Universidad Nacional de La Plata.
- Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
- Martin Ravallion & Shubham Chaudhuri, 1997. "Risk and Insurance in Village India: Comment," Econometrica, Econometric Society, vol. 65(1), pages 171-184, January.
- MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:dls:wpaper:0037. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ana Pacheco)
If references are entirely missing, you can add them using this form.