Identifying Single or Multiple Poverty Trap: An Application to Indian Household Panel Data

Abstract

The paper examines the household asset dynamics in India as well as Indian rural States. The paper contributes to the empirical analysis of poverty trap by investigating the presence of one potential poverty trap to simultaneous poverty trap. The paper uses the India Human Development Survey for the year 1993 and 2005. We use the local polynomial regression with Epanechnikov kernel weights to test the existence of multiple or single equilibrium in asset poverty dynamics. Moreover, we use the partial linear mixed model to test the impact of illiteracy trap and under-nutrition trap on asset dynamics process. Across all the States we find only single dynamic asset equilibrium for rural households. However the nature of the asset dynamics varies from one state to another. We find that, in most of the States, asset accumulation does not take place and welfare dynamics is very poor in rural areas. Further, we find under-nutrition trap uniformly affect the asset accumulation in most of the States. However an illiteracy trap affects the asset level heterogeneously over the income and regional distribution. We find the most deprived States (Bihar, Uttar Pradesh, Orissa and Madhya Pradesh) have the multiple poverty trap compared to richer States. Our result implies that asset dynamics of the household varies in the long term according to the types of traps. Government and policy makers should take pointed policy and programme based on whether the poor are trapped and in what ways.