“Poor stays poor” Household asset poverty traps in rural semi-arid India

Although identifying the existence and the nature of household-level poverty traps would have important implications for the design of poverty reduction policies empirical evidence is still scant. A small, growing empirical literature has begun testing for poverty traps in the form of threshold points in non-linear welfare dynamics employing a variety of quantitative methods and producing a variety of conclusions. This paper employs a novel semiparametric panel data estimator that combines the advantages of estimation methods in the existing literature and applies it to a uniquely long panel data set to examine poverty dynamics in three villages in rural semi-arid India. Since in the context of dynamic poverty traps we are primarily concerned with expected, structural well-being it measures household welfare in assets. Structural immobility in these Indian villages is pervasive. Household asset holdings are stagnant over time. Absent any structural changes, the currently poor are likely to remain poor, suggesting a strong type of poverty trap that is qualitatively different from a dynamic thresholds-type poverty trap. While all types of households face static asset holdings, higher castes, larger landholders and more educated households are significantly less likely to be poor.