The dynamics of poverty in South Africa (updated)

Type Journal Article - Southern Africa Labour and Development Research Unit; NIDS Discussion Paper 2016/1
Title The dynamics of poverty in South Africa (updated)
Issue 174
Publication (Day/Month/Year) 2017
We analyse the determinants of South Africans moving into and out of poverty over the first four waves of the National Income Dynamics Study (NIDS) for the years 2008 to 2014/2015. The first descriptive sections of the study focus on the balanced panel of NIDS respondents and find that a relatively high poverty exit rate was accompanied by a substantial proportion of the population being trapped in severe poverty. The roles of demographic versus income changes over time reveal that changing household composition is the largest trigger of poverty entry and exit, and that increasing income from government grants is the main trigger precipitating poverty exit for about one quarter of our sample. We then estimate an endogenous switching model that controls for initial conditions and selective attrition on the full sample of respondents in order to better understand what traps South Africans in poverty. We find that ignoring the correlations between the unobservables affecting initial conditions, sample retention and poverty transitions can lead to substantially biased results, and that there is significant genuine state dependence underlying poverty dynamics. This has important policy implications, as preventing people from falling into poverty in the first place is likely to yield greater returns that targeting the individual correlates of poverty directly.

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