The persistence of urban poverty in Ethiopia: a tale of two measurements

Abstract

This article investigates dynamics of poverty in urban Ethiopia using both subjective and objective definitions of poverty. The two sets of estimates of persistence and recurrence of poverty are similar, suggesting that consumption-based mobility or poverty persistence estimates are not seriously distorted by measurement error.

Notes

¹Based on a consumption survey of Canadian households Ahmed et al. (2006) report that measurement errors are substantial and nonclassical.

²See Ravallion (1998, 2008) and Atkinson (1987) for detailed discussions on the subject.

³In practise, there are no established methods to deal with measurement errors in poverty analysis, particularly when the errors are assumed to be correlated with consumption or are heteroskedastic. In the case of poverty dynamics, Bane and Ellwood (1986) and others set an arbitrary upper and lower bound on income changes around the poverty line for movements across it to be considered valid transitions.

⁴See Bane and Ellwood (1986), Stevens (1999), Devicienti (2003) and Bigsten and Shimeles (2008) for a detailed discussion of exit and re-entry rates. These estimates are consistent and efficient (Wooldridge, 2002).

⁵For recent applications, see Biewen (2004) and Cappellari and Jenkins (2004). Chay and Hyslop (1998) discuss how to address the problem of endogeneity of initial conditions in this model. Stewart (2006) provides a STATA program to estimate dynamic random effects model with auto-correlated error component used in this study.

⁶Chronic poverty computed from the panel is around 24%.