Urban Poverty Dynamics in Peru and Madagascar, 1997–99: A Panel Data Analysis1

Abstract

Despite the increasing awareness concerning the importance of distinguishing chronic and transient poverty for policy making, cross-country comparative studies of poverty dynamics in developing countries are virtually non-existent. The small, though increasing, number of existing studies makes it difficult to draw general conclusions because of the methodological differences among them. Crucial questions are still unanswered. Are the factors associated with chronic poverty and vulnerability the same from one country to the other? What are the features that characterize exits from poverty? Based on a large three-wave panel sample of Peruvian and Madagascan urban households (1997–99), the importance of poverty transitions is examined, as well as the characteristics of the temporarily and the chronically poor, with respect to those of non-poor households. Then, we highlight through a multinomial logit model, the specific contributions of household characteristics (demographics, human and physical capital), but also of shocks experienced by these households (related to demographics and the job market) in explaining chronic poverty as well as poverty entries and exits. In this analysis, the impact of location variables linked to neighbourhoods (provision of public goods, income levels, human capital and employment structure, among others) on poverty transitions is also considered. One of the main findings is that the factors associated with permanent poverty amply cover the characteristics generally identified in analyses on static poverty correlates. Nevertheless, these results do not confirm the idea that only shocks are relevant to temporary forms of poverty. The type and quality of entry in the job market, as well as the features of the neighbourhood, turn out to be equally relevant in the analysis of poverty dynamics. These results suggest that the spatial inequality dimension should be added to analyses of income and poverty transition dynamics.