Asset Poverty Trap Analysis

Asset Poverty Trap Analysis tests whether households face nonlinear asset dynamics that can trap them in persistent poverty, using panel data on what households own rather than on what they earn. Developed by Michael Carter and Christopher Barrett (2006), the approach estimates the asset recursion — how a household's asset stock this period maps into its stock next period — and looks for multiple equilibria. When that mapping is S-shaped, there is an unstable equilibrium, the Micawber threshold, below which households converge toward a low-asset trap and above which they accumulate toward a higher equilibrium. This yields a dynamic asset poverty line and a structural reading of who is poor and likely to stay poor.