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Working paper 30 - Rural Incomes, Inequality and Poverty Dynamics in Kenya

Author(s):  Suri, Tavneet; Tschirley, David; Irungu, Charity; Gitau, Raphael; Kariuki, Daniel


Introduction

Alleviating poverty remains one of the key challenges in many developing economies. In Kenya, a recent nation-wide survey, the 2006 Kenya Integrated Household and Budget Survey, (KIHBS) finds that 46% of the total Kenyan population is absolutely poor, i.e. below the poverty line, whereas 49% of the rural population is absolutely poor (Kenya National Bureau of Statistics, 2007). The 1997 Welfare Monitoring Survey showed a poverty rate of 57% overall and 60% in the rural population.

There has, therefore, been some reduction in poverty across the country and across rural areas over the last decade. Poverty is not a static concept. People often move in and out of poverty from year to year. This is unsurprising in Sub-Saharan Africa, given that these economies mainly depend on agriculture and are dominated by seasonality and highly variable weather conditions.

Changes in poverty status can be due to economic cycles and shocks, such as poor weather, loss of employment, or loss of a major income earner through death, injury, or long illness. Adding to this, institutions for income and consumption smoothing in these economies are either inadequate or are absent altogether. Some households do manage to escape poverty, while others remain in poverty for extended periods of time.

Understanding what factors drive household movements in and out of poverty is extremely important for the design of poverty reduction strategies, and is still an open area of research. Addressing these issues requires panel data. The absence of such data has in the past limited the scope of poverty studies to looking at point-in-time behaviour across households to explain differences in consumption (or incomes). However, a large amount of household level panel data has become available in recent years in various developing economies, allowing broader and more authoritative studies on poverty.

These studies have generated a better understanding of the movement of households in and out of poverty over time, and have shown that those below the poverty line are a heterogeneous group, both across time and across households. The poor consist of those who are poor a large part of the time (chronic poor), and those whose who move in and out of poverty (transient poor). Alleviating chronic and transient poverty may require different policy responses. For example, chronic poverty may require long-term policies that build poor households’ asset base, such as investment in human capital and land reform; transient poverty may be reduced by appropriate short-term measures focusing on consumption smoothing, such as insurance, targeted income transfers, food stamps, and subsidies.

This paper studies trends and dynamics in poverty and inequality in rural Kenya at the aggregate and household levels over the decade 1997 to 2007. Kenya has been described as highly unequal, ranking among the top ten most unequal countries in the world and fifth in Africa (SID, 2004). Inequality is worse in rural areas: the richest 20% of the rural and urban populations earn 62% and 51% of incomes, respectively (SID, 2004), while the bottom 20% earns 3.5 % of rural income and 5.4% of urban income (World Socialist Website, 2008).

The literature on inequality has documented the positive and negative effects it can have on growth, a relationship that has been shown to be extremely non-linear and the causality of which has been greatly debated (see Forbes, 2000 and Duflo and Banerjee, 2003). We will not address the effects of inequality on growth, but will document the trends and changes in rural incomes and inequality to broaden our description of the relative poor and better understand the distributional characteristics of the rural Kenyan economy. In addition to documenting these trends and changes, we analyze the correlates of poverty and the drivers of transitions in and out of poverty over this period.

Rural incomes, Inequality and Poverty Dynamics in Kenya

 

 

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