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Household Dynamics in Two Transition Economies

Title: Household Dynamics in Two Transition Economies
Michael Lokshin, and Martin Ravallion
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We estimate a panel data model of household incomes in Hungary and Russia during the 1990s. The model allows for nonlinear dynamics in endogenous household incomes and for endogenous attrition. Our estimates reveal nonlinearity in the dynamics, consistent with the claim that income inequality is bad for growth in mean income. We do not find evidence of an unstable dynamic equilibrium, such that a vulnerable household will never recover from a large transient shock. While our results indicate that households generally bounce back from shocks, the concavity we find in the recursion diagram implies that the adjustment process is slower for poorer households.


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