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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.

Suggested Citation

  • FAYE Ousmane & ISLAM Nizamul & ZULU Eliya, 2011. "Poverty dynamics in Nairobi's slums: testing for true state dependence and heterogeneity effects," LISER Working Paper Series 2011-56, LISER.
  • Handle: RePEc:irs:cepswp:2011-56
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    References listed on IDEAS

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    Cited by:

    1. Thomas, Anne-Claire & Gaspart, Frédéric, 2015. "Does Poverty Trap Rural Malagasy Households?," World Development, Elsevier, vol. 67(C), pages 490-505.
    2. FUSCO Alessio & ISLAM Nizamul, 2012. "Understanding the drivers of low income transitions in Luxembourg," LISER Working Paper Series 2012-31, LISER.
    3. Sara Ayllón, 2013. "Understanding poverty persistence in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(2), pages 201-233, June.
    4. Azomahou T.T. & Yitbarek E., 2015. "Poverty persistence and informal risk management: Micro evidence from urban Ethiopia," MERIT Working Papers 006, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    5. repec:dau:papers:123456789/10594 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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