Income Convergence in South Africa: Fact or Measurement Error?

Tobias Lechtenfeld () and Asmus Zoch
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Tobias Lechtenfeld: World Bank

No 10/2014, Working Papers from Stellenbosch University, Department of Economics

Abstract: This paper asks whether income mobility in South Africa over the last decade has indeed been as impressive as currently thought. Using new national panel data (NIDS), substantial measurement error in reported income data is found, which is further corroborated by a provincial income data panel (KIDS). By employing an instrumental variables approach using two different instruments, measurement error can be quantified. Specifically, self-reported income in the survey data is shown to suffer from mean-reverting measurement bias, leading to sizable overestimations of income convergence in both panel data sets. The preferred estimates indicate that previously published income dynamics may have been largely overestimated by as much as 77% for the national NIDS panel and 39% for the provincial KIDS panel. Overall, income mobility appears much smaller than previously thought, while chronic poverty remains substantial and transitory poverty is still very limited in South Africa.

Keywords: Measurement Error; Income Dynamics; Consumption Dynamics; South Africa (search for similar items in EconPapers)
JEL-codes: C81 I32 O15 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-afr
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://www.ekon.sun.ac.za/wpapers/2014/wp102014/wp-10-2014.pdf First version, 2014 (application/pdf)

Related works:
Working Paper: Income Convergence in South Africa: Fact or Measurement Error? (2014)
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