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Short-lived shocks with long-lived impacts? - household income dynamics in a transition economy


  • Lokshin, Michael
  • Ravallion, Martin


In theory, it is possible that the persistent poverty that has emerged in many transition economies, is attributable to underlying, non-convexities in the dynamics of household incomes - such that a vulnerable household will never recover from a sufficiently large, but short-lived shock to its income. This happens when there are multiple equilibria in household incomes, such that two households with the same characteristics, can have different incomes in the long run. To test the theory, the authors estimate a dynamic, panel data model of household incomes, with non-linear dynamics, and endogenous attrition. Their estimates, using data for Hungary in the 1990s, exhibit non-linearity in the income dynamics. The authors find no evidence of multiple equilibria. In general, households bounce back from transient shocks, although the process is not rapid.

Suggested Citation

  • Lokshin, Michael & Ravallion, Martin, 2000. "Short-lived shocks with long-lived impacts? - household income dynamics in a transition economy," Policy Research Working Paper Series 2459, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2459

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    Cited by:

    1. Molnár, György & Kapitány, Zsuzsa, 2002. "Egyenlőtlenség és mobilitás a magyar háztartások jövedelmében, kiadásaiban és tartós fogyasztási cikkeinek állományában
      [Inequality and mobility in the income, expenditures and consumer-durable sto
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1015-1041.
    2. Dercon, Stefan, 2004. "Growth and shocks: evidence from rural Ethiopia," Journal of Development Economics, Elsevier, vol. 74(2), pages 309-329, August.
    3. Patricia Justino & Philip Verwimp, 2013. "Poverty Dynamics, Violent Conflict, and Convergence in R wanda," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(1), pages 66-90, March.
    4. Stefan Dercon (QEH), "undated". "Vulnerability: a micro perspective," QEH Working Papers qehwps149, Queen Elizabeth House, University of Oxford.
    5. Stefan Dercon (QEH), "undated". "Risk, Growth and Poverty: what do we know, what do we need to know?," QEH Working Papers qehwps148, Queen Elizabeth House, University of Oxford.
    6. Luis Casanova, 2008. "Trampas de Pobreza en Argentina: Evidencia Empírica a Partir de un Pseudo Panel," CEDLAS, Working Papers 0064, CEDLAS, Universidad Nacional de La Plata.
    7. Catherine Araujo Bonjean & Stéphanie Brunelin & Catherine Simonet, 2012. "Impact of climate related shocks on child's health in Burkina Faso," Working Papers halshs-00725253, HAL.
    8. L. ALAN WINTERS & NEIL McCULLOCH & ANDREW McKAY, 2015. "Trade Liberalization and Poverty: The Evidence So Far," World Scientific Book Chapters,in: Non-Tariff Barriers, Regionalism and Poverty Essays in Applied International Trade Analysis, chapter 14, pages 271-314 World Scientific Publishing Co. Pte. Ltd..
    9. Dercon, Stefan & Hoddinott, John, 2003. "Health, Shocks and Poverty Persistence," WIDER Working Paper Series 008, World Institute for Development Economic Research (UNU-WIDER).
    10. Zsuzsa Kapitany & Gyorgy Molnar, 2002. "Inequality and mobility analysis by the Hungarian Rotation Panel, 1993-98," IEHAS Discussion Papers 0204, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    11. Pierre-Richard Agenor, 2002. "Business Cycles, Economic Crises, and the Poor," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(3), pages 145-160.
    12. Ravallion, Martin, 2001. "Growth, Inequality and Poverty: Looking Beyond Averages," World Development, Elsevier, vol. 29(11), pages 1803-1815, November.
    13. Dercon, Stefan, 2004. "Growth and shocks: evidence from rural Ethiopia," Journal of Development Economics, Elsevier, vol. 74(2), pages 309-329, August.


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