Poverty dynamics in Nairobi's slums: testing for true state dependence and heterogeneity effects

Ousmane Faye, Nizamul Islam and Eliya Zulu

No 2011-56, LISER Working Paper Series from Luxembourg Institute of Socio-Economic Research (LISER)

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.

Keywords: Poverty dynamics; state dependence; unobserved heterogeneity; attrition; simulated maximum likelihood; urban poverty (search for similar items in EconPapers)
JEL-codes: C15 C35 I32 O18 R23 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011-11
New Economics Papers: this item is included in nep-afr and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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