Poverty Dynamics in Nairobi’s Slums: Testing for True State Dependence and Heterogeneity Effects

CEPS/INSTEAD Working Paper No. 2011-56

32 Pages Posted: 17 Nov 2011

See all articles by Ousmane Faye

Ousmane Faye

CEPS/INSTEAD

Nizamul Islam

Luxembourg Institute of Socio-Economic Research (LISER)

Eliya Msiyaphazi Zulu

African Population and Health Research Center (APHRC)

Date Written: November 16, 2011

Abstract

We investigate the factors underlying poverty transitions in Nairobi’s slums focusing on whether differences in characteristics make some individuals more prone to enter poverty and persist in, or whether past experience of poverty matters on future poverty situations. Answers to these issues are crucial for designing effective and successful poverty alleviation policies in informal residential settlements in Africa. The paper uses an endogenous switching model, which accounts for initial conditions, non-random attrition, and unobserved heterogeneity. The estimations are based on a two-wave sample of a panel dataset from the Nairobi Urban Health and Demographic Surveillance System (NUHDSS), the first urban-based Health and Demographic Surveillance Systems (HDSS) in Africa. Estimation results indicate that true state dependence (TSD) constitutes the major factor driving poverty persistence. There is little heterogeneity effects; only 10 percent of poverty persistence is likely due to heterogeneity. Moreover, even when household and individual observed characteristics differ notably, the TSD size remains very large. This implies that active anti-poverty programs aimed at breaking the cycle of poverty constitute the most appropriate policies for taking people out of poverty and preventing them to fall back in. Indeed, this does not exclude policies focusing on individual heterogeneities. Active policies for improving individual’s education, personal skills and capacities, or living environment would also allow preventing people entering poverty or persisting in.

Keywords: Poverty dynamics, state dependence, unobserved heterogeneity, attrition, simulated maximum likelihood, urban poverty

JEL Classification: C15, C35, I32, O18, R23

Suggested Citation

Faye, Ousmane and Islam, Nizamul and Zulu, Eliya Msiyaphazi, Poverty Dynamics in Nairobi’s Slums: Testing for True State Dependence and Heterogeneity Effects (November 16, 2011). CEPS/INSTEAD Working Paper No. 2011-56, Available at SSRN: https://ssrn.com/abstract=1960615 or http://dx.doi.org/10.2139/ssrn.1960615

Ousmane Faye (Contact Author)

CEPS/INSTEAD ( email )

3, Avenue de la Fonte
Esch-sur-Alzette, L-4364
Luxembourg
00352585855 (Phone)

HOME PAGE: http://www.ceps.lu

Nizamul Islam

Luxembourg Institute of Socio-Economic Research (LISER) ( email )

11, Porte des Sciences
Campus Belval – Maison des Sciences Humaines
Esch-sur-Alzette, L-4366
Luxembourg

Eliya Msiyaphazi Zulu

African Population and Health Research Center (APHRC) ( email )

P.O. Box 10787
Nairobi, 00100
Kenya

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