Abstract
Households that experience persistent poverty fall behind economically and can be caught in a poverty trap, especially in the presence of shocks capable of shifting their level of assets. However, empirical evidence can be instrumental in the design of policies and measures that would allow households an opportunity to escape. Using household level panel data from 2007 to 2010 and the 2007 magnitude 8.0 earthquake in Pisco, Peru, as an exogenous shock, we construct an asset index of two dimensions in order to explore household sensibility to shocks and to assess the existence of poverty traps. Our results reveal that a shock in assets is associated with an increase in both housing materiality and water/sanitation asset stocks and can be explained by access to mitigating factors such as aid, labour and finance. Furthermore, our findings indicate the existence of multiple equilibria, which is consistent with the poverty trap hypothesis. The existence of poverty traps in Peru has real implications for fighting poverty, in that without the adequate assistance, it cannot be eradicated.
Similar content being viewed by others
Data availability
The datasets generated during and/or analysed during the current study are available from the corresponding author on reasonable request.
Code availability
The codes used during the current study are available from the corresponding author on reasonable request.
Notes
Panel data from the Peruvian National Household Survey on Living Conditions and Poverty.
We performed both a two-sample t test and Little's chi-squared test for covariate-dependent missingness (CDM) and find no evidence that eliminating households interviewed after August was not at random. Therefore, our final sample of 1,273 observation is reliable and representative.
We performed several analyses to test the reliability of both dimensions, and, even though the Housing Materiality dimension is far more significant than the water/sanitation dimension, both are highly reliable. Furthermore, to prove their accuracy, we run a discriminant analysis to test their capacity to predict group membership (in this case poverty). Results confirm that they are good predictors for poverty/non-poverty with total predictability capacity of 78.9%, which is in line with the literature (Burns and Burns 2008; Linting et al. 2007).
For more information about this issue see Carter et al. (2007), (p. 840).
A loss in assets is defined as the difference between the shock asset level \({{\varvec{A}}}_{{\varvec{si}}}\) and the pre-shock asset level \({{\varvec{A}}}_{{\varvec{pi}}}\).
It should be noted that households not exposed to the shock may have also suffered a loss of assets. The asset growth path of households not exposed to the shock could also be interrupted by indirect effects of the earthquake. This is a desirable result because we need the presence of a large general movement in assets levels to evaluate the existence of poverty traps.
The quartiles are included as a dummy approach. Quartiles were calculated according to households’ pre-shock holding of assets in the housing materiality dimension.
References
Adato M, Carter MR, May J (2006) Exploring poverty traps and social exclusion in South Africa using qualitative and quantitative data. J Dev Stud 42(2):226–247. https://doi.org/10.1080/00220380500405345
Barrett CB (2005) Rural poverty dynamics: development policy implications. Agric Econ 32(1):45–60. https://doi.org/10.1111/j.0169-5150.2004.00013.x
Barrett CB, Swallow BM (2006) Fractal poverty traps. World Dev 34(1):1–15. https://doi.org/10.1016/j.worlddev.2005.06.008
Bird K, Higgins K, Harris D (2010) Spatial poverty traps. an overview. In ODI working paper (no. 321)
Burns R, Burns R (2008) Business research methods and statistics using SPSS. SAGE, Thousand Oaks
Calvo C, Dercon S (2005) Measuring individual vulnerability (no. 229; ISSN 1471-0498). http://hite-p-5885.htmwww.rrojasdatabank.info/calvo.pdf
Carter MR, Barrett CB (2006) The economics of poverty traps and persistent poverty: an asset-based approach. J Dev Stud 42(2):178–199. https://doi.org/10.1080/00220380500405261
Carter MR, Little PD, Mogues T, Negatu W (2007) Poverty traps and natural disasters in ethiopia and honduras. World Dev 35(5):835–856. https://doi.org/10.1016/j.worlddev.2006.09.010
Centro Nacional de Planeamiento Estratégico (2019) El Perú en el que vivimos: caracterización del territorio
Cuadra CH, Tokeshi K (2008) Lessons learned from the 2007 Pisco earthquake (Peru) and recommendations for disaster mitigation. In: 14th world conference on earthquake engineering (14WCEE)
Davis DR, Weinstein DE (2008) A search for multiple equilibria in urban industrial structure. J Reg Sci 48(1):29–65
Dercon S (2004) Growth and shocks: evidence from rural Ethiopia. J Dev Econ 74:309–329. https://doi.org/10.1016/j.jdeveco.2004.01.001
Desforges L (2000) State tourism institutions and neo-liberal development: a case study of Peru. Tour Geogr 2(2):177–192. https://doi.org/10.1080/14616680050027888
Elhawary S, Castillo G (2008) El Rol del Estado Afectado: Un Estudio de Caso de la Respuesta al Terremoto Peruano. www.odi.org.uk
Ellis F (1999) Rural livelihood diversity in developing countries: evidence and policy implications. Overseas Development Institute, 40. http://www.ncbi.nlm.nih.gov/pubmed/16983965
Giesbert L, Schindler K (2012) Assets, shocks, and poverty traps in rural Mozambique. World Dev 40(8):1594–1609. https://doi.org/10.1016/j.worlddev.2012.04.002
Hansen B (2000) Sample splitting and threshold estimation. Econometrica 68(3):575–603
Instituto Nacional de Estadística e Informática (2012) Informe técnico: Evolución de la Pobreza 2007–2011. http://www.inei.gob.pe/media/cifras_de_pobreza/pobreza_informetecnico.pdf
Instituto Nacional de Estadística e Informática (2015) Mapa de pobreza provincial y distrital 2013. 168. https://doi.org/10.1097/HCM.0b013e3181cd8b29
Kraay A, McKenzie D (2014) Do poverty traps exist? Assessing the evidence. J Econ Perspect 28(3):127–148. https://doi.org/10.1257/jep.28.3.127
Lai G, Lin N, Leung SY (1998) Network resources, contact resources, and status attainment. Soc Netw 20(2):159–178. https://doi.org/10.1016/S0378-8733(97)00012-9
Linting M, Van Der Kooij A (2012) Nonlinear principal components analysis with CATPCA: a tutorial. J Pers Assess 94(1):12–25. https://doi.org/10.1080/00223891.2011.627965
Linting M, Meulman JJ, Groenen PJF, van der Kooij AJ (2007) Nonlinear principal components analysis: introduction and application. Psychol Methods 12(3):336–358. https://doi.org/10.1037/1082-989X.12.3.336
Lu W, Wu H, Geng S (2021) Heterogeneity and threshold effects of environmental regulation on health expenditure: considering the mediating role of environmental pollution. J Environ Manag 297:113276. https://doi.org/10.1016/J.JENVMAN.2021.113276
Manisera M, Van Der Kooij A, Dusseldorp E (2010) Identifying the component structure of satisfaction scales by nonlinear principal components analysis. Qual Technol Quant Manag 7(2):97–115
Mckay A, Perge E (2011) Economics department working paper series how strong is the evidence for the existence of poverty traps? A multi country assessment. J Dev Stud 25:1–32
Miles SB, Chang SE (2006) Modeling community recovery from earthquakes. Earthq Spectra 22(2):439–458. https://doi.org/10.1193/1.2192847
Moser C, Felton A (2007) The construction of an asset index: measuring asset accumulation in Ecuador (No. 87; Issue July). http://www.mendeley.com/research/construction-asset-index-measuring-asset-accumulation-ecuador-caroline-moser-andrew-felton-cprc-working-paper-87-isbn-1904049869/
Perez Caldentey E, Titelman D (2018) La inclusión financiera para la inserción productiva y el papel de la banca de desarrollo. In Comisión Económica para América Latina y el Caribe (CEPAL) (153rd ed.)
Petersen MD, Harmsen SC, Jaiswal KS, Rukstales KS, Luco N, Haller KM, Mueller CS, Shumway AM (2018) Seismic hazard, risk, and design for south america. Bull Seismol Soc Am 108(2):781–800. https://doi.org/10.1785/0120170002
Saavedra J, Chong A (1999) Structural reform, institutions and earnings: evidence from the formal and informal sectors in Urban Peru. J Dev Stud 35(4):95–116. https://doi.org/10.1080/00220389908422582
Tavera H, Bernal I (2008) The Pisco (Peru) earthquake of 15 August 2007. Seismol Res Lett 79(4):510–515. https://doi.org/10.1785/gssrl.79.4.510
World Bank (2011) Economic impact of the 2007 earthquake in the water and sanitation sector: full study. In Water and Sanitation Program (Issue May). http://www.ircwash.org/sites/default/files/WSP-2011-Economic.pdf
Acknowledgements
All views expressed in this manuscript are those of the authors.
Funding
The authors did not receive support from any organization for the submitted work.
Author information
Authors and Affiliations
Contributions
All authors contributed to the study conception and design. Material preparation, data collection and analysis were performed by AC and ML. The first draft of the manuscript was written by AC, and all authors commented on previous versions of the manuscript. All authors read and approved the final manuscript.
Corresponding author
Ethics declarations
Conflict of interest
The authors have no conflicts of interest to declare that are relevant to the content of this article.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Chavez, A., Lufin, M. Household asset dynamics and shocks: an empirical assessment of asset-based poverty traps in Peru. Ann Reg Sci 69, 57–87 (2022). https://doi.org/10.1007/s00168-021-01108-4
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00168-021-01108-4