This paper explores the key factors that cause changes in the economic wellbeing of rural households in Kenya. We specifically determine the relationship between the initial economic position of households and education on income growth and mobility. We use a three-period panel dataset to estimate a dynamic panel data model of full income. Results show strong evidence of (low) income persistence for the poor and those in the low agricultural potential areas that lack higher education. The low income persistence for the poor and uneducated may be evidence of cumulative dis-advantage and possible existence of poverty traps. As expected, higher education seems to eliminate the low income persistence for these vulnerable groups and allow convergence of incomes towards their average. This indicates the potential role of education in not only breaking the cycle of poverty for those trapped in it, but also its ability to allow increased recovery from income shocks.


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