Determinants of Welfare Dynamics in Rural Nicaragua

This article explores the determinants of poverty movements in rural Nicaragua by introducing a bivariate probate model, making it possible to treat the initial state of poverty as endogenous and thus avoiding introducing selection bias. The results indicate that this is relevant when exploring welfare dynamics in rural Nicaragua, as initially poor households face a higher probability of being poor in the subsequent period compared with non-poor households.

It is also found that household composition, access to non-agriculture wage income and ownership of productive assets are important factors in explaining poverty movements. Moreover, climate-related shocks such as droughts and pest attacks not only have persistent and adverse impacts on household consumption, but also affect households’ productive asset holdings, which could affect their income-generating potential in the longer term.