Do Short-Term Observed Income Changes Overstate Structural Economic Mobility?


  • The authors thank Gary Fields, David Newhouse, Steve Younger, Paul Cichello and seminar participants at Cornell University for valuable comments on earlier drafts, the International Food Policy Research Institute for granting access to the Pakistan data and United States Agency for International Development (USAID) for financial support through grant LAG-A-00-96-90016-00 to the BASIS CRSP. Views expressed and any remaining errors are the authors’ alone.


The recent empirical literature on household income dynamics in developing countries has tended to find considerable intertemporal economic mobility and thus inferred that a large proportion of poverty is transitory. This article introduces a statistical test which shows that these findings are partially driven by stochastic changes in transitory income. Estimates of total economic mobility are inversely correlated with the panel spell length. For short data spells, estimated total economic mobility is significantly greater than the underlying structural economic mobility because of short-lived movements across the poverty line that cancel out over periods of multiple years.