This study, prepared for the international workshop "Understanding and addressing spatial poverty traps: an international workshop", explores the dynamics of poverty, specifically examining how certain initial conditions, household decisions and other factors that may change over time affect poverty. We identify dynamic relationships between behavioral variables, exogenous shocks at one point in time and indicators of household welfare in subsequent years.
Despite four decades of evolving approaches to alleviate rural poverty in Africa, poverty is persistent, widespread, and in some cases increasing. Surprisingly, this is true even in the face of overall economic growth for many countries throughout the continent. The co-existence of strong economic growth and deepening poverty underscores the fact that the causes of poverty are complex and that appropriate policy responses are inadequately understood.
Most quantitative studies characterizing rural poverty have been based on analysis of cross-sectional household survey data, which cannot provide insights into how or why households move into or out of poverty over time. In particular, it is difficult to identify specific behavioral decisions at one point in time that alter the path of households’ living standards over the future, which is arguably critical for designing effective poverty alleviation strategies.
This study uses longitudinal data collected from 1324 households which participated in three nationwide surveys conducted over seven years, in 1997, 2000, and 2004 to identify salient household-level and community-level correlates of poverty in rural Kenya. Next, dynamic relationships are identified between time-invariant initial conditions, lagged household resource allocation and technology adoption decisions, and current income and wealth outcomes. Lastly, the paper draws implications for designing policies and programs for alleviating rural poverty and promoting income growth.
After ranking households into terciles (or thirds) in each year, it is shown that the majority of households (57%) remained at the same relative poverty tercile in 2004 as that in which they began in 1997. Twenty-two percent of households made some progress in moving out of poverty, while 21% experienced a decline in welfare. The distribution of wealth across these households is highly unequal, with the value of assets owned by the 217 poorest households being only 13% of the value of the median household, compared to 808% for the 249 consistently wealthy households.
Some of the factors helping to explain variation in asset-poverty levels across rural households in Kenya include the age and education of the household head, whether someone in the family has a formal job, land ownership, family size and the distance to a tarmac road. We found that while geographic location is an important factor, household characteristics explain more of the variation in asset-poverty than do geographic factors.
The findings from this study show that access to land continues to be a major determinant of rural household welfare. The consistently non-poor group cultivates 3-4 times more land on average than the chronically poor. Households that had made positive progress out of poverty had significantly increased the amount of land they controlled, from an average of 3 acres in 1997 to 5 acres in 2004. The direction of causality is not clear.
More types of crops were grown in 2004 than in 1997 by poorer as well as non-poor households. We see an increasing diversity in off-farm income sources by the poorest households, particularly into lower entry-barrier, higher risk income generating activities. This finding lends support to earlier theories that the poor, or those suffering a negative shock to their incomes may rely on such activities as temporary poverty alleviation. This study shows, in a dynamic context, that such short term solutions rarely lead to long term growth, and may in fact be poverty traps.
There has also been an increase in the types of livestock sold, particularly by non-poor households, who sell four times as many types of livestock and livestock products than do the poor. The importance of livestock production and marketing to the welfare of successful households holds irrespective of farm size. This seems to be particularly true for the dairy market. This study shows that the consistently wealthy are more likely to be producing, that the production is more commercialized and that it is a greater share of total income compared to other poverty groups.
The findings from this study have a number of important implications for the design of strategies, policies and instruments for reducing poverty and supporting agricultural growth in rural areas of Africa. First of all, that the majority of households are static in terms of wealth may suggest that there are relatively few profitable growth opportunities in rural Kenya that are accessible to poor households.
Secondly, the analysis demonstrates that the primary sources of variations in asset-poverty are at the household level, where asset holdings define a household’s capability to pursue different livelihood activities that generate income. Sustainable poverty reduction needs to be built on a solid understanding of household asset positions and the contexts where assets are used as the basis for identifying livelihood strategies that lead to pathways out of poverty.
Given the importance of land in household asset portfolios, agricultural growth and poverty reduction strategies need to take into account the realities of declining farm sizes and inequalities in access to land. The practical implication of declining available cultivated land per agricultural person is that raising labor and crop productivity on small farms under any plausible productivity growth scenarios is necessary, but not singularly sufficient to drive rural economic growth. Poverty reduction and growth strategies need to recognize the multi-dimensionality of rural livelihoods and the importance of farm-non farm linkages in facilitating rural growth. Policy priority therefore should be given to providing an enabling rural environment for commercial activities such as institutional innovations that support competitiveness of household producers, lower level of formal and informal taxes, and increased investment in public goods such as agricultural research, extension, and infrastructure. No single approach taken alone is likely to alleviate poverty.