The recent entry of China into the WTO has led to a heated debate about the impact of
liberalisation upon the poor in China. Aggregate studies of growth and poverty are
generally unable to identify the causal pathways through which policies impact upon
households, whilst modeling approaches only provide plausible simulations of what may
occur. This paper attempts to disentangle the empirical causes of changes in income and
poverty transitions in Sichuan during in the early 1990s, a period of major reform. We
find that poverty is highly dynamic with income and poverty changes driven by changes
in income from farming and animal husbandry. We also find evidence that health,
rainfall and grain market shocks have a strong impact on incomes whilst grain quota
prices play a small but statistically significant role in social protection.