Transient poverty in postreform rural China

In a new, relatively high-quality, panel-data set on household consumptions for postreform rural China we find that consumption variability accounts for a large share of observed poverty and is likely to he a severe constraint on efforts to reach the long-term poor. Half of the mean squared poverty gap and over a third of the mean poverty gap is transient in that it is directly attributable to year-to-year fluctuations in consumption There is enough transient poverty to treble the cost of eliminating chronic poverty when targeting transfers according to current consumptions and to tilt the balance in favor of untargeted transfers. Anti-poverty policies in China may have to give greater emphasis to the problem of transient poverty. (C) 1998 Academic Press.