Transient Proverty In Rural China

June 1996 The authors study transient poverty in a six-year panel dataset for a sample of 5,000 households in post-reform rural China. Half of the mean squared poverty gap is transient, in that it is directly attributable to fluctuations in consumption over time. There is enough transient poverty to treble the cost of eliminating chronic poverty when targeting solely according to current consumption - and to title the balance in favor of untargeted transfers. Transient poverty is low among the chronically poorest, and tends to be high among those near the poverty line. Using censored quantile regression techniques, the authors find that systemic factors determine transient poverty, although they are generally congruent with the determinants of chronic poverty. There is little to suggest that the two types of poverty are created by fundamentally different processes. It appears that the same things that would help reduce chronic poverty - higher and more secure farm yield and higher levels of physical and human capital - would also help reduce transient poverty.

The authors study transient poverty in a six-year panel dataset for a sample of 5,000 households in post-reform rural China. Half of the mean squared poverty gap is transient, in that it is directly attributable to fluctuations in consumption over time. There is enough transient poverty to treble the cost of eliminating chronic poverty when targeting solely according to current consumption - and to title the balance in favor of untargeted transfers. Transient poverty is low among the chronically poorest, and tends to be high among those near the poverty line. Using censored quantile regression techniques, the authors find that systemic factors determine transient poverty, although they are generally congruent with the determinants of chronic poverty. There is little to suggest that the two types of poverty are created by fundamentally different processes. It appears that the same things that would help reduce chronic poverty - higher and more secure farm yield and higher levels of physical and human capital - would also help reduce transient poverty.

Both chronic and transient poverty are reduced by greater command over physical capital, and life-cycle effects for the two types of poverty are similar. But there the similarities end. Most policies aimed at reducing chronic poverty may have little or no effect on transient poverty. Are the determinants of chronic and transient poverty different? Do policies that reduce transient poverty also reduce chronic poverty?Jalan and Ravallion decompose measures of household poverty into chronic and transient components and use censored conditional quantile estimators to investigate the household and geographic determinants of both chronic and transient poverty, taking panel data for post-reform rural China. They find that a household's average wealth holding is an important determinant for both transient and chronic poverty. Although household demographics, levels of education, and the health status of members of the household are important for chronic poverty, they are not significant determinants of transient poverty.Both chronic and transient poverty are reduced by greater command over physical capital, and life-cycle effects for the two types of poverty are similar. But there the similarities end. Smaller and better-educated households have less chronic poverty, but household size and level of education matters little for transient poverty. Living in an area where health and education are better reduces chronic poverty but appears to be irrelevant to transient poverty. Nor are higher foodgrain yields a significant determinant of transient poverty, although they are highly significant in reducing chronic poverty.These findings suggest that China's poor-area development program may be appropriate for reducing chronic poverty but is unlikely to help reduce variations in consumption that households typically face in poor areas - the exposure to uninsured income risk that underlies transient poverty will probably persist. Other policy instruments may be needed to deal with transient poverty, including seasonal public works, credit schemes, buffer stocks, and insurance options for the poor.This paper - a product of Poverty and Human Resources, Development Research Group- is part of a larger effort in the group to reexamine the role of the informal sector.

Growth, inequality, and poverty; Public capital e investment; Concptual framework and model; Data, estimation, and results.

Is effective social protection an investment with long-term benefits? Does inequality impede growth? Household panel data on incomes in rural China offer some answers.

Is effective social protection an investment with long-term benefits? Does inequality impede growth? Household panel data on incomes in rural China offer some answers. Theoretical work has shown that nonlinear dynamics in household incomes can yield poverty traps and distribution-dependent growth. If this is true, the potential implications for policy are dramatic: Effective social protection from transient poverty would be an investment with lasting benefits, and pro-poor redistribution would promote aggregate economic growth.Jalan and Ravallion test for nonlinearity in the dynamics of household incomes and expenditures using panel data for 6,000 households over six years in rural southwest China. While they find evidence of nonlinearity in the income and expenditure dynamics, there is no sign of a dynamic poverty trap.The authors argue that existing private and social arrangements in this setting protect vulnerable households from the risk of destitution. However, their findings imply that the speed of recovery from an income shock is appreciably slower for the poor than for others. They also find that current inequality reduces future growth in mean incomes, though the quot;growth costquot; of inequality appears to be small. The maximum contribution of inequality is estimated to be 4-7 percent of mean income and 2 percent of mean consumption.This paper - a product of the Poverty Team, Development Research Group - is part of a larger effort in the group to better understand the dynamic processes influencing household welfare in risk-prone environments.