The causes of chronic and transient poverty and the implications for poverty reduction policy in rural China

Abstract

The study focuses on two components of total poverty: chronic and transient poverty, and investigates their relative importance in total observed poverty, as well as the determinants of each component. We find that transient poverty accounts for a large proportion of total poverty observed in the poor rural areas of China. By analyzing the determinants of the two types of poverty, we find that household demographic characteristics, such as age of the head of households, family sizes, labour participation ratio, and educational level of the head of the households, are very important to the poverty status of households. These factors matter more to chronic poverty than transient poverty, and have greater impacts on the poverty measured by consumption than that measured by income. Besides the demographic factors of households, other household factors like physical stocks, the composition of income, and the amount of cultivated lands also have significant effects on both chronic and transient poverty. It is also confirmed that change in cash holding and saving and borrowing grain are used by rural households to cope with income variation and smooth their consumption. Attributes of community where the households reside are also important to poverty. With very few exceptions, we do not find that poverty programs have significant impact on poverty reduction at the households' level. We interpret this as the poverty programs benefiting the wealthy more than the poor in a given poor area. The main reason for this could be that the implementation design of these programs fails to target the poor.