The Economics of Poverty Traps and Persistent Poverty: an Asset-based Approach

Longitudinal data on household living standards open the way to a deeper analysis of the nature and extent of poverty. While a number of studies have exploited this type of data to distinguish transitory from more chronic forms of income or expenditure poverty, this paper develops an asset-based approach to poverty analysis that makes it possible to distinguish deep-rooted, persistent structural poverty from poverty that passes naturally with time due to systemic growth processes. Drawing on the economic theory of poverty traps and bifurcated accumulation strategies, this paper briefly discusses some feasible estimation strategies for empirically identifying poverty traps and long term, persistent structural poverty. We also propose an extension of the Foster-Greer-Thorbecke class of poverty measures to provide a natural measure of long-term welfare status. The paper closes with reflections on how asset-based poverty can be used to underwrite the design of persistent poverty reduction strategies. We thank Harold Alderman, Felix Naschold and participants in the November 2004 USAID BASIS CRSP policy conference on Combating Persistent Poverty in Africa for helpful comments on an earlier draft. This work has been made possible by support from the United States Agency for International Development (USAID), through grant LAGA-00-96-90016-00 to the BASIS CRSP, and the Strategies and Analyses for Growth and Access (SAGA) cooperative agreement, number HFM-A-00-01-00132-00. The views expressed here and any remaining errors are the authors’ and do not represent any official agency.  Copyright 2004 by Michael R. Carter and Christopher B. Barrett. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.