Download presentation
Presentation is loading. Please wait.
1
Economics of Poverty Traps and Persistent Poverty: An Asset-based Approach Michael R. Carter University of Wisconsin Christopher B. Barrett Cornell University January 2005 American Economic Association annual meetings Philadelphia
2
Why We Need An Asset-Based Approach to Poverty Analysis The ‘Washington Consensus’ reforms constitute an implicit theory of structural poverty transitions: 1.Getting Prices Right should raise returns on unskilled labor, poor households’ primary asset; 2.Getting Institutions Right by securing property rights should enhance asset accumulation by poor households; 3.Deregulation should enhance financial access of poor households, further boosting accumulation But, has it worked? Very hard to gauge using conventional, flow-based approaches to poverty analysis that look only at (potentially transitory) outcomes.
3
Evolving Views of Poverty Successive generations of poverty analysis 1 st : static income/expenditure analysis (headcount, poverty gap, FGT measures) 2 nd : dynamic income/expenditure analysis (chronic/transitory poverty distinction) 3 rd : static asset poverty analysis (structural/stochastic poverty distinction) 4 th : dynamic asset poverty analysis
4
Asset-Based View of Poverty Transitions Stochastic churning (B to u(A’’)) from Poverty: Structural via accumulation (A’ to A”) Structural via higher returns (u(A’) to C)
5
Poverty Traps and the Dynamic Asset Poverty Threshold Will structurally poor move ahead over time? Lessons from empirical macroeconomics – “twin peaks”, “divergence big time” or “convergence”? Key question: do returns to productive assets (land, labor, etc.) increase in wealth? Such a relationship could exist due to: –Increasing returns to scale in income generating process –Minimum investment levels/indivisibilities –Uninsured risk
6
Locally Increasing Returns and Multiple Livelihood Equilibria Marginal return on assets A*2A*2 A*1A*1 Utility ASAS A Asset Poverty Line Income Poverty Line Assets L1 L2 U* H U* L No problem if perfect financial markets exist. But if not, what savings strategies are feasible below A S ?
7
A t =A 0 (dynamic equilibrium) ASAS Static Asset Poverty Line Dynamic Asset Poverty Line A* 2 A* 1 A* Utility Figure 3: The Dynamic Asset Poverty Line A Income Poverty Line Initial Assets L1 L2 Next Period’s Assets U* H U* L A 4th Generation View Poverty Trap Dynamic Asset Poverty Line (Micawber Threshold)
8
Empirical Strategies to Identify Dynamic Asset Poverty Thresholds Need to find threshold in asset space where dynamics bifurcate. Challenges: - highly nonlinear dynamics - sparse data around unstable eql’n - multidimensional asset space Efforts to date: - Lybbert et al. 2004 EJ, Barrett et al. 2004, Adato et al. 2005 all use nonparametric methods based on single asset or asset index. Need to improve on these methods
9
Dynamic Poverty Measures Two natural extensions of FGT class: Predicted flow dynamics version: Asset gap version:
10
Implications for Persistent Poverty Reduction Strategies An asset-based approach permits - identification of minimum asset bundles necessary for hhs to engineer own growth - natural integration of safety net strategies with poverty reduction strategies - prioritization of efforts to rectify mechanisms of financial and social exclusion
11
Thank you!
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.