Long-Term Dynamics of Poverty Transitions in India

Abstract

I use a stochastic model to explore the dynamics of poverty in India from 1952 to 2006 and find that temporal transitions into and out of poverty are common. Model outcomes suggest that transitions out of poverty outnumber transitions into poverty in recent times, but that there is still a nontrivial proportion of individuals transitioning annually into poverty, highlighting the economic fragility of those near the poverty line. There is also a marked persistence of poverty over time, and although this has been slowly declining, past poverty remains a good predictor of current poverty. Particularly concerning in this context are the income trajectories of those in the bottom decile of the income distribution for whom escape from poverty appears infeasible given extant income dynamics. Finally, the dynamics suggest that transitional and persistent poverty are distinct phenomena that require distinct policy responses involving both missing markets and state action.