Tegemeo Institute of Agricultural Policy and Development Wps 39/2010 Pathways into and out of Poverty: a Study of Rural Household Wealth Dynamics in Kenya

Tegemeo Institute of Agricultural Policy and Development is a Policy Research Institute under Egerton University with a mandate to undertake empirical research and analysis on contemporary economic and agricultural policy issues in Kenya. The institute is widely recognized as a centre of excellence in policy analysis on the topical agricultural issues of the day, and in its wide dissemination of findings to government and other key stakeholders with a view to influencing policy direction and the decision making process. Tegemeo's empirically based analytical work, and its objective stance in reporting and disseminating findings has over the past decade won the acceptance of government, the private sector, civil society, academia, and others interested in the performance of Kenya's agricultural sector. The authors also acknowledge the long-term support that United States Agency for International Development (USAID) Kenya has provided to the Tegemeo Institute of Egerton University for the collection of panel survey data over the 10-year period on which this study draws. They also with to thank Mary Bundi and Christine Kiria for their assistance in the retrospective in-depth life history surveys data collection and Patricia Johannes for editorial and formatting assistance. v EXECUTIVE SUMMARY The recent availability of longitudinal survey data provides a new means to analyze the dynamics of household wealth accumulation and deterioration. This paper identifies the factors associated with smallholder farm households having ascended out of poverty or descended into poverty between 1997 and 2007. Using a nationwide balanced panel of 1,275 farm households in 22 districts in Kenya interviewed in 1997, 2000, 2004, and 2007, we find that a relatively small fraction of the sample experienced either an appreciable improvement or decline in their relative asset wealth over the 10-year period. Over 70% of the sampled farm households are in roughly the same wealth position as they were 10 years earlier, although more households experienced an increase in asset wealth than a decline. Evidence also points to a decline in poverty rates, which is consistent with Government of Kenya findings of declining national poverty rates over the same general period. For the 25% of households that did experience an appreciable change in asset wealth between 1997 and 2007, we revisited 84 of these households in 2008 with more detailed retrospective life history surveys to capture a wider range of factors influencing current household livelihoods. Households successfully accumulating assets and rising out of poverty (i) were more likely …