# _NPS Panel Data analysis_

The regressions in table two might suffer from both omitted variables and endogeneity, as higher consumption in the first place may be what allows the household to develop a better livelihood strategy. But they do provide suggestive evidence on the role of HEs in raising household welfare. By using panel data, observing the same households over time, we are better able to control for initial conditions in the household such as location, assets, and human capital. This allows us to dig deeper into the dynamic questions on how livelihood change affects household welfare – Does adding an HE actually help raise welfare, or do households have to be better off first to benefit from starting a HE? Even with the panel data, we are not able to fully control for the selectivity into the HE sector, but we are able to see whether _adding_ an HE (or other non-farm income) improves consumption growth relative to those that did not add this type of income. This is a start on the question of whether having an HE makes a household rich in Mozambique or vice versa.

The NPS Panel data set consists of households that were interviewed in the 2002/03 multipurpose household survey (IAF) and resurveyed in 2008 (NPS). The questionnaires were the same in the two surveys on topics such as demography, living conditions, and household assets; but on consumption and employment, the 2008 questionnaire was substantially different. In order to develop a panel data set with comparable variables in these areas, special variables were created.

- Consumption data are not directly comparable between the two surveys as a 7 day diary was used in IAF2003, while 7 day recall was used in NPS2008. Our solution was to temporally and spatially deflate both variables, compute household expenditure per capita, and then assign households a ranking. Our mobility variable or welfare growth variable is the change per adult equivalent rankings in each year<sup>9</sup> .

- HE activity as primary employment is asked in similar, though not in identical ways in the two survey years, so we have no problem identifying HE as primary employment. But there are _no data on secondary employment in 2003_ , while there are data for this in the 2008 NPS questionnaire (as well as a separate module to collect HE income). For 2003, we can only capture HE activity as secondary employment in the sources of income section. Our solution to this problem was to define HE as a secondary activity at the household level only in both years. A household has someone with HE as a secondary employment when the household reports HE activity in the income module, but no one reports HE activity as primary employment.<sup>10</sup> Though this definition is imperfect and not 100 percent comparable, we find it the best way to capture all HE activity in both surveys.

> 9 There is a risk that the change in consumption measure could lead to a systematically different ranking in each year. However, both mean comparisons and regression analysis on observable variables indicate that households that added HEs to their income portfolio between 2002/3 and 2008/9 are not significantly different than those that did not. We therefore do not believe that the different consumption measures have a systematic bias in regards to our main interest: households starting up HEs versus those that did not start a HE.

> 10 Problems remain with this approach. In 2003, the recall period for having HE income was only 30 days, while in the NPS the recall period for having HE income was 12 months. As a result, we have overstated the number of household who created an NFE over the 5 year period. We also see a slight positive trend in NFE as primary

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