Long Term Dynamics of Poverty Transitions in India

17 Pages Posted: 14 Aug 2020

See all articles by Anand Sahasranaman

Anand Sahasranaman

Krea University ; Imperial College London

Date Written: July 14, 2020

Abstract

We model the dynamics of poverty using a stochastic model of Geometric Brownian Motion with reallocation (RGBM) and explore both transient and persistent poverty over 1952-2006. We find that annual transitions in and out of poverty are common and show a rising trend, with the rise largely being driven by transitions out of poverty. Despite this promising trend, even toward the end of the time frame, there is a non-trivial proportion of individuals still transitioning annually into poverty, indicative of the economic fragility of those near the poverty line. We also find that there is still a marked persistence of poverty over time, though the probability of poverty persistence is slowly declining. Particularly concerning in this context are the poverty trajectories of those at the very bottom of the income distribution. The choice of poverty line appears to impact the dynamics, with higher poverty lines corresponding to lower transitions and higher persistence probabilities. The distinct nature of emergent transient and persistence dynamics suggests that the approaches to counter these phenomena need to be different, possibly incorporating both missing financial markets and state action.

Keywords: poverty, income, India, dynamics, persistence, transient

JEL Classification: C6, I32

Suggested Citation

Sahasranaman, Anand, Long Term Dynamics of Poverty Transitions in India (July 14, 2020). Available at SSRN: https://ssrn.com/abstract=3651204 or http://dx.doi.org/10.2139/ssrn.3651204

Anand Sahasranaman (Contact Author)

Krea University ( email )

Andhra Pradesh
India

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

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