Abstract:
The mechanisms that perpetuate poverty are still not well understood. An emerging literature focuses on the psychology of poverty, investigating psychological and behavioral factors that may affect poverty entry and make it difficult to escape poverty. This paper explores the relationship between psychological well-being and poverty in South Africa. We rely on Waves 1-5 of the National Income Dynamics Study (NIDS), a nationally representative household panel survey that spans a decade. A descriptive analysis shows a strong negative correlation between psychological well-being and per capita household expenditure, with individuals in lower expenditure deciles displaying significantly higher risks of depression and lower levels of life satisfaction. To identify causal effects, we turn to an econometric framework that accounts for endogenous initial poverty conditions, unobserved heterogeneity and non-random panel attrition. Preliminary results suggest that the risk of poverty significantly increases as psychological well-being deteriorates, and the other way around. We discuss a range of avenues for follow-up research.
