0 The Causes of Transient Poverty and its implication to Poverty Reduction Policy in Rural China1

The study focuses on two components of total poverty: chronic and transient poverty and made an investigation of their relative importance in total observed poverty, as well as the determinants of each component. We found that the transient poverty account for large proportion of total poverty observed in the poor rural area of China. By analyzing the determinants to two types of poverty, we found demographic characteristics of households, such as age of the head of households, family sizes, the labour’s proportion in the number of family numbers, and educational level of the head of the households are very important to the poverty status of households. These factors matter more to chronic poverty than transient poverty, and have greater impacts on the poverty measured by consumption than that measured by income. Besides the demographic factors of households, other households ’ factors, like physical stocks, the composition of income and the amount of cultivated lands, also have significant effects on both chronic and transient poverty. It is also confirmed that change in cash holding and saving and borrowing grain are used by rural households to smooth their consumption. Attributes of community where the households resid