Income Growth and Mobility of Rural Households in Kenya: Role of Education and Historical Patterns in Poverty Reduction

significantly with education of head. It is however noteworthy that after 3.3 years of
education, the combined effect turns negative but remains insignificant even at mean
education level (6.36 years) as shown in Table 2b. This implies possible recovery of
income shocks for those with higher levels of education, but a cycle of low income
persistence for those with less education especially the 30% with less than 4 years of
education. For these households, results point to the existence of poverty traps and
cumulative disadvantage which is thankfully broken at higher levels of education.

Table 2b. Combined Effects of LID and Education at Mean Levels

The difference in the results given by Models (4) and (5) especially in regard to
income persistence justifies the use of appropriate estimation methods to enable the
drawing of relevant conclusions. These differences may be explained by looking at the
procedure of IV estimation used. The method of 2SLS applied to Model (5) implies that
the final estimation uses the predicted portion of the suspect endogenous variable which
can be viewed as the permanent income component of full income while the LID in
model (4) consists of both the permanent and transitory components. In this paper, we
take Model (5) as representing the most reliable parameter estimates based on the
appropriateness of the estimation procedure that not only accounts for the endogeneity of
the LID, but its interaction with education as well. The results of the over identification

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