Impact of a Commodity Price Spike on Poverty Dynamics: Evidence from a Panel of Rural Households in Bangladesh

In this paper we assess the effects of the dramatic rise in agricultural commodity prices during 2007-2008 on income dynamics and poverty among rural households in Bangladesh. We use data from a nationally representative longitudinal survey of rural households in Bangladesh collected in four waves in 1988, 2000, 2004, and 2008. Nargis and Hossain (2006) analysed income dynamics and poverty incidence for the first three waves, finding a declining trend in both the incidence and depth of poverty, aided by in particular by human capital development and the off-farm labor opportunities. Here we update the analysis to include data collected in 2008, at the height of the aforementioned spike in agricultural prices. We find that various measures of rural poverty in Bangladesh had sunk back to pre-2000 levels. The price of a balanced food basket more than doubled from 2000-2008, while household incomes rose only 15 percent during the same time period. We present updated analysis of income determinants and document a reduction in upward poverty mobility during 2004-2008. Moreover, we present new analysis that suggests that determinants of poverty have not been time-invariant.