Armenia and accordingly the role of remittances in poverty reduction is more muted.<sup>2</sup> However, for Georgia, the structure of growth within the economy has led to some expansion of economic opportunities and jobs for the poorer segments of the population in recent years and this has played an important role in reducing poverty in the country.

Yet, despite these recent gains, the South Caucasus region (with the possible exception of Azerbaijan) remains the poorest in the Europe and Central Asia (ECA) region. Using the US$5 a day line, poverty rates would be 71.7 percent, 28.2 percent, 69.3 percent in Armenia, Azerbaijan and Georgia respectively.<sup>3</sup> All three countries also face enduring challenges of high vulnerability to covariate external shocks (e.g., currency devaluation) as well as idiosyncratic shocks (e.g., health) on the one hand and high degree of spatial disparities in welfare, between urban and rural areas and especially between the respective capital cities and the rest of the country on the other. This gives rise to durable horizontal inequalities in the landscape for economic opportunities for the poor and can propagate poverty traps. For example, in Azerbaijan the poverty rate in the outlying region of Ganja-Gazakh (17 percent) is more than four times the poverty rate in the capital city of Baku (4 percent).<sup>4</sup> Likewise, the devaluation of the Azeri _Manat_ in 2015, which led consumer prices to increase by 10.4 percent between June 2015 and February 2016 is estimated to have pushed an additional million people into poverty during this period.<sup>5</sup> Against this broad background, this report seeks to deepen the available stock of knowledge on poverty in these countries by introducing a dynamic perspective of living standards. Instead of focusing on the share of the population which lives below the national poverty line at one point in time, the attempt will be to describe transitions in and out of poverty between two periods. By decomposing the net change in poverty, this approach creates additional insights on whether poverty reduction is a one-way street or shows substantial churning – with multiple transitions in and out of poverty at the same time. In addition, the report will also zoom out and take an intergenerational perspective on the transmission of welfare between current and the earlier generations. The motivation for doing that will be to assess how the broader economic transition that the countries in the South Caucasus have gone through over the last two and half decades as well as recent economic trajectories have affected the life chances of the citizens in these countries. For example, to what extent does who one’s parents were, and what they did and how much they were educated affect life chances of citizens today?

> 2 This is despite the fact that personal remittances as a share of GDP in Georgia is 10.4 percent and not that much lower from Armenia’s 14.2 percent.

> 3 The World Bank produces international poverty estimates to facilitate an international comparison of poverty across countries. At the same time, national statistics offices often develop their own national poverty measurement methodology which is used to monitor progress towards development goals and coordinate policies around poverty reduction. This note uses national poverty estimates to better align the analysis with the dialogue in the different countries.

> 4 Azerbaijan Poverty Note (2015).

> 5 Cancho et al. (2016).

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