Although there is now a substantial international literature on poverty dynamics, bothacademic and policy discussions on poverty in Nepal continue to focus on static notions of poverty. This paper, for the first time, studies poverty dynamics in Nepal by analysing the determinants of chronic and transient poverty using data from a nationally representative panel of 962 households surveyed in 1995/96 and 2003/04. Suggesting that one of theconsequences of poverty is its negative impact on asset accumulation, it also looks at howhuman capital accumulation differs between transient and chronically poor individuals. The findings indicate that while the average per-capita consumption of households increasedbetween 1995/96 and 2003/04, over 47% of the households were poor in at least one ofthose two years. Among them, around 43% were chronically poor and the remaining 57%were transient poor. In studying the determinants of poverty, we focus on three factors,namely ethnicity, human capital and wealth. Our multinomial logit regression results indicatethat while household wealth and human capital have a significant association with bothchronic and transient poverty, they are more strongly related to chronic poverty. Anotherimportant factor related to poverty is the intensity of violent conflict in the household’s district.Ethnicity, on the other hand, does not have a significant relationship with either type ofpoverty. Our investigation of the effects of transient and chronic poverty on human capital accumulation reveals that, on average, the chronically poor have a lower level of humancapital. This gap can be largely explained by the differences in the characteristics of the chronic and transient poverty groups. Our findings suggest that since both the transient and chronic poor occur in large numbers, the government should have concrete policies toaddress both types of poverty. In particular, emphasis on human capital development and rural asset enhancement could have a beneficial impact on both transient and chronic poverty