Food Price Shocks-Induced Poverty Traps: Analysis Using a Panel Dataset from Uganda

This paper uses longitudinal data collected in Uganda (2005-2012) and develops a modified standard Ramsey model to analyze households’ welfare growth and test the assumption that differential exposure to food price shocks leads to different welfare trajectories and to potentially increased risks of poverty traps. The study focuses on two welfare indicators, namely consumption and asset indices, and employs a battery of econometric methods, ranging from parametric GMM fixed effects models to locally weighted scatterplot smoother (LOWESS), local polynomial regressions, and Ruppert et al’s (2003) semi-parametric penalized splines to address non-linearities in welfare dynamics, identify and locate critical welfare thresholds, and test for the presence of single against multiple poverty traps. Using the full sample, I find nonlinearities in welfare dynamic pathways and reduction in the growth rates of both consumption levels and assets holdings as a consequence of exposure to food price shocks and different asset shocks. However, there is no evidence of poverty traps or bifurcated welfare trajectories in the data, but instead I identify only a single dynamic stable equilibrium, located slightly above the official poverty line (1 USD PPP per capita/ per day converted in Ugandan Shillings, UShs) at around 30,500UShs of monthly real consumption per adult equivalent and 1.14 Poverty Line Units for asset index. Furthermore, the empirical results reveal that Ugandan households are converging towards specific welfare equilibria, depending on their initial conditions, demographic characteristics, the extent of their vulnerability and differential exposure to food price shocks. Particularly, I found that, in terms of consumption, households highly exposed to food price shocks were expected to move to welfare equilibria located on average at 15.1% lower levels than those less exposed but only at 3.3% lower in terms of assets accumulation.

Mukasa, A.N. "Food price shocks-induced poverty traps: analysis using a panel dataset from uganda" Ferdi Policy brief B136, december 2015