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

Our choice of income as opposed to a discrete poverty measure is based on the
advantages that come with analyzing income as a continuous variable as opposed to
categorizing using an arbitrary poverty line, thus losing out on a lot of information
(Jenkins, 2000, Ravallion 1996).

This study contributes to the existing body of literature in the following ways:
First, it adds to the limited empirical studies on income dynamics in SSA where poverty
is immense. Secondly, the use of a three period panel data enables us to control for
historical patterns and still benefit from use of panel data methods unlike similar studies
that have relied on two period panels (Grootaert et al., 1997, Fields et al., 2003a, 2003b,
Woolard and Klasen, 2005, Glewwe and Hall, 1998). The ability to account for both
historical patterns as well as unobserved factors may provide more reliable estimates of
individual effects. Of major importance here is the ability to determine the economic
mobility of households especially the initially poor over the study period in comparison
with their wealthier counterparts. Third, unlike any of the other studies mentioned above,
we disaggregate the results by poverty status and agricultural potential, thus allowing the
pattern of income growth for each to unfold. This is indeed important for policy design
and targeting. Fourth, we look at how policies in education can be used to break income
persistence especially for those trapped in a cycle of poverty. Finally, we deal with the
potential endogeneity of the lagged income difference in a dynamic panel data setting, a
problem either commonly assumed or not dealt with exhaustively in earlier studies.

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