Income Convergence in South Africa: Fact or Measurement Error?

Stellenbosch Working Paper Series No. WP10/2014
 
Publication date: 2014
 
Author(s):
[protected email address] (World Bank)
[protected email address] (Department of Economics, University of Stellenbosch)
 
Abstract:

This paper asks whether income mobility in South Africa over the last decade has indeed been as impressive as currently thought. Using new national panel data (NIDS), substantial measurement error in reported income data is found, which is further corroborated by a provincial income data panel (KIDS). By employing an instrumental variables approach using two different instruments, measurement error can be quantified. Specifically, self-reported income in the survey data is shown to suffer from mean-reverting measurement bias, leading to sizable overestimations of income convergence in both panel data sets. The preferred estimates indicate that previously published income dynamics may have been largely overestimated by as much as 77% for the national NIDS panel and 39% for the provincial KIDS panel. Overall, income mobility appears much smaller than previously thought, while chronic poverty remains substantial and transitory poverty is still very limited in South Africa.

 
JEL Classification:

C81, I32, O15

Keywords:

Measurement Error, Income Dynamics, Consumption Dynamics, South Africa

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BER Weekly

17 February 2020
Last Thursday, President Ramaphosa delivered his State of the Nation address (Sona) to parliament. The statement gave recognition to the economic challenges SA currently face, especially regarding electricity supply. More emphasis was placed on the role of the private sector to help solve these challenges. Read more in the Current affairs section. On...

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