Previous studies of poverty in developing countries have to a great extent focused on the characteristics of the household head and used these as proxies for the underlying ability of the household to generate income. This paper uses five rounds of panel data to investigate the persistence of poverty in urban Ethiopia, with a particular focus on the role of intra-household heterogeneity in occupations.
Dynamic probit and system generalized method of moments regression results suggest that international remittances and labor market status of non-head household members are important determinants of households' poverty status. Results also show that controlling for these variables and the “initial conditions problem” encountered in nonlinear dynamic probit models reduces the magnitude of estimated poverty persistence significantly for urban Ethiopia. These findings have important implications for identifying the poor and formulating effective poverty reduction and targeting strategies.
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