Theory‐Based Measures of Chronic Poverty and Vulnerability
Using guidance from the microeconomic theory of poverty traps, this chapter uses the past to identify structural patterns of change — asset dynamics — rather than past levels of poverty. The statistical identification of these patterns then permits the creation of forward-looking poverty measures that tell us where we expect the poor to be in the future, not where they have been in the past. The chapter proceeds as follows. Section 6.2 develops a theoretically grounded approach to chronic poverty that emphasizes the role of individual heterogeneity and clarifies the role that vulnerability to economic shocks plays in producing chronic poverty. Section 6.3 shows how knowledge of the Micawber Frontier can be used to generate two classes of chronic poverty measures. Section 6.4 then takes some first steps toward implementing the ideas put forward in this chapter, using estimated asset dynamics in South Africa over the 1993 to 1998 period to calculate chronic poverty measures based on distance from the asset threshold.
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