Assets, Shocks, and Poverty Traps in Rural Mozambique
Introduction
This paper explores household welfare dynamics and tests whether a micro-level poverty trap exists in post-war rural Mozambique. We do so by applying the theory of asset-based poverty traps developed by Carter and Barrett (2006). This theory is based on the idea of a dynamic asset poverty threshold at which household wealth accumulation trajectories bifurcate. Households below a critical asset level are predicted to converge to a lower level equilibrium where they remain trapped in poverty. In contrast, households above this level accumulate assets, reach a higher level equilibrium, and escape poverty in the long run. The existence of a threshold-based poverty trap may call for tailored policies to lift households above a critical level of wealth.
Shortly after gaining independence in 1975, Mozambique devolved into a civil war that lasted until 1992. Most acts of warfare took place in rural areas with the rural population suffering much war-related displacement and the destruction of public infrastructure (Vines, 1996). Rural households were especially likely to lose their productive asset base (Vines, 1996). At the end of the war, GDP per capita was below its pre-independence level (Brück, 2001: 59). With large inflows of donor assistance, investments in infrastructure, education, and the health sector were made and macroeconomic indicators improved steadily. Between 1992 and 2009, annual growth rates were, on average, more than 8% (Nucifora & Pereira da Silva, 2011). Still, these improvements do not appear to have trickled down to rural households. The post-war period is characterized by policies that prioritized structural adjustment, economic stability, and the liberalization of markets as a means of increasing agricultural output and trade. However, due to decades of socialist rural development policies and the long duration of the war, there were often no markets needing liberalization and no supply response to be stimulated in the countryside (Brück, 2001, Hanlon and Smart, 2008). Hence, especially in rural areas, poverty remains high in Mozambique, not least due to recurrent shocks, such as droughts, floods, cyclones, crop pests, diseases, and increasing mortality rates as a result of HIV/AIDS.
We use two waves of a household panel survey (from 2002 and 2005) collected in rural Mozambique to explore household welfare dynamics. Our analysis addresses three research questions. First, is there evidence for a micro-level poverty trap? Second, what is the short-term impact of a drought on households’ asset accumulation? Third, how do the strategies of households to cope with food insecurity influence their asset accumulation in the short term? Our analysis makes use of nonparametric, parametric, and semi-parametric estimation techniques. Moreover, we employ two different asset indices: one comprehensive asset index based on a broad range of asset categories that captures the medium-term welfare of households; and one liquidatable asset index based on assets that households can sell, which captures short-term welfare effects.
This paper contributes to the literature in three ways. First, few studies test the asset-based approach with empirical data. The context of rural Mozambique is particularly suitable for this endeavor, given that the post-war reconstruction period is characterized by low but variable asset endowments due to the war and other shocks. Second, little research investigates the impact of shocks and strategies to cope with food insecurity on asset accumulation. Our analysis thus reveals how factors other than the initial conditions will shape a household’s accumulation dynamics. Third, our findings differ from those in most other empirical studies on sub-Saharan Africa. There appears to be no poverty trap based on multiple equilibria in existence in rural Mozambique, but rather a single low-level steady state around the poverty line. We interpret this result as a sectoral trap of the rural farm-based economy, which is caught in underdevelopment as a whole. Our results support evidence from a number of studies on other regions (and a few studies on sub-Saharan Africa) suggesting that a single equilibrium is more common in settings where households rely on more than a single dominant asset.
The next section provides an overview of current research on micro-level poverty traps. Section 3 introduces the household survey and rainfall data. Section 4 outlines the estimation strategy. Empirical results are presented in Section 5, starting with descriptive statistics and a poverty profile. Findings from multivariate analyses are then discussed. Section 6 concludes.
Section snippets
Poverty traps
Why do some households or individuals remain mired in poverty for extended periods of time, while others are able to make use of market opportunities, adjust to the consequences of shocks, and lift themselves out of poverty? Addressing this question, Carter and Barrett have developed a theory of asset-based poverty traps that focuses on households’ asset accumulation over time.1 This
TIA household panel surveys
Our analysis uses the 2002 and 2005 panel waves of the Trabalho de Inquérito Agrícola (TIA) household survey collected in Mozambique by the Ministry of Agriculture (Ministério da Agricultura e Desenvolvimento Rural, 2002, Ministério da Agricultura, 2005). TIA is a rural household survey representative of small- and medium-sized
Poverty trap
We estimate a version of the Carter and Barrett (2006) model to test whether a micro-level poverty trap exists. In a first step, an asset index is derived from a bundle of assets that are likely to shape a household’s future well-being. Following an approach proposed by Adato, Carter, and May (2006), the asset index is constructed through a livelihood regression, which assigns weights on assets based on their marginal contribution to a household’s livelihood:where
Descriptive statistics
In rural Mozambique, land is the most important productive asset, with net revenues from agricultural production accounting for over 60% of total household income. Land markets are barely developed (Brück & Schindler, 2009). Population density is low, all land is in principle property of the state, and legal reforms allowing individuals to hold titles to document their use rights have only been introduced recently (de Quadros, 2003). However, sample households use a variety of channels to
Conclusion
Our analysis reveals that household incomes fluctuate considerably between 2002 and 2005. Yet, there is little differentiation in productive asset endowments across households, or over time. Rather, all rural households are expected to converge to a common low-level equilibrium in the medium term, which is close to the poverty line. This may indicate that households in rural Mozambique are collectively trapped in generalized underdevelopment. However, there is evidence of group-specific
Acknowledgments
We gratefully acknowledge very helpful comments from four anonymous reviewers, Tilman Brück, Joppe de Ree, Pol Fabrega, Andy McKay, Emilie Perge, Julia Petersen Vincenzo Salvucci, Hannah Schürenberg-Frosch, Marc Vothknecht, and the participants of the Fifth IZA/World Bank Conference Employment and Development, the 2010 Spring Meeting of Young Economists, and the International Conference on Poverty Traps at Parthenope University. All remaining errors are ours. Kati Schindler is grateful to the
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