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Welfare Dynamics in Pakistan and Ethiopia -- Does the Estimation Method Matter?

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  • Felix Naschold
Abstract
Identifying household-level welfare dynamics and associated dynamic poverty trap thresholds can have important implications for the targeting of poverty reduction policies. The small existing empirical microeconomic literature has found evidence both for and against poverty traps. Using household panel data from rural Pakistan and Ethiopia, this article examines whether these different results are likely driven by differences in estimation methods or whether they reflect actual differences across settings. It applies the estimation methods from the existing literature to the same two datasets and also proposes a novel semiparametric panel data estimator that combines the advantages of the previous fully parametric and nonparametric approaches. The results suggest that absent any dynamic poverty trap thresholds the effect of using different estimation methods is secondary, having a small influence on the estimated long-term level of household well-being but not the identification of multiple dynamic welfare equilibria and associated dynamic poverty thresholds. Households in rural Pakistan and Ethiopia seem to be stuck in a static, structural-type poverty trap facing an expected level of long-term well-being that places them squarely in poverty.

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  • Felix Naschold, 2013. "Welfare Dynamics in Pakistan and Ethiopia -- Does the Estimation Method Matter?," Journal of Development Studies, Taylor & Francis Journals, vol. 49(7), pages 936-954, July.
    • Handle: RePEc:taf:jdevst:v:49:y:2013:i:7:p:936-954
    DOI: 10.1080/00220388.2013.785522
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    7. Clare Balboni & Oriana Bandiera & Robin Burgess & Maitreesh Ghatak & Anton Heil, 2023. "Why Do People Stay Poor?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(2), pages 785-844.
    8. Hang, Yuan, 2017. "Is There a Poverty Trap of multiple Dynamic Equilibria? The Analysis on Data of Rural Fixed Observation Point from 2004 to 2012," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 257264, Agricultural and Applied Economics Association.
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    17. Hill, Daniel, 2020. "Technology heterogeneity and poverty traps: A latent class approach to technology gap drivers of chronic poverty," 2020 Conference (64th), February 12-14, 2020, Perth, Western Australia 305253, Australian Agricultural and Resource Economics Society.
    18. Charlery, Lindy & Walelign, Solomon Zena, 2015. "Assessing environmental dependence using asset and income measures: Evidence from Nepal," Ecological Economics, Elsevier, vol. 118(C), pages 40-48.
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    21. Christopher Barrett & Cissé Jennifer Denno, 2016. "Working Paper 236 - Estimating Development Resilience: A Conditional Moments-Based Approach," Working Paper Series 2340, African Development Bank.
    22. Kurosaki, Takashi & 黒崎, 卓, 2015. "Household-Level Recovery after Floods in a Tribal and Conflict-Ridden Society," CEI Working Paper Series 2015-5, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.

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