Testing Asset Dynamics for Poverty Traps in Rural China

This paper quantifies the link between agricultural income, caloric intake, and asset‐based poverty in rural China. The analysis employs data from the China Health and Nutrition Survey including 1,279 households in eight survey years. The balanced data models are then estimated to reveal the role that various shocks (e.g., prices and climate/weather) play in determining the asset dynamics between different income groups using four different asset indexes which cover comprehensive, fixed, productive, and consumable assets. To capture absolute asset dynamics, a fourth‐degree polynomial function was used in a three‐stage least squares system made up of an asset index, caloric intake, and farm income. The empirical results do not show evidence of a poverty trap based on multiple equilibriums.