empirical model, and how these variables differ on average between periods of sustained poverty reduction and periods without sustained poverty reduction. Further details on construction of the variables and additional summary statistics are in the Online Supplement.

All variables are predetermined in each of our data windows, as _t_ refers to the first year of the five-year period. Our sample of 377 country-five-year periods includes 94 countries, observed in 5-year periods from 1981-2015, where five year periods range between 1981 to 2015: 81-85, 8690, 91-95, 96-00, 01-05, 06-10, 11-15. This sample excludes advanced economies, or those with a poverty headcount below 3 percent for all years in the data. Advanced economies cannot provide any information about sustained poverty reduction, because poverty has been eliminated (following the World Bank definition) for all years they are observed.

**Sustained poverty reduction** The first key variable is our outcome, _Dit_ , a binary variable indicating whether a country experienced sustained extreme poverty reduction over a five-year period. The data used to construct our outcome variable are from the World Bank (2020), which reports the national extreme poverty headcount, or the percent of population living below $1.90 PPP in 2011 US dollars, in years where household survey data are available. The indicator variable has the advantage of a clearer link between the empirics and the theoretical model, which makes qualitative statements about industrialization/development, but is silent on magnitudes. It also allows us to identify periods of “ _sustained_ poverty reduction” as 5-year windows during which the poverty count is consistently reduced abstracting from cases where poverty reduction is transitory due for example to a short-lived commodity price boom.<sup>8</sup> Figure 1 shows this variable for select countries.

To summarize the main patterns in the poverty reduction data, Figure 2 displays the share of five-year periods which achieved sustained extreme poverty reduction, over time across the world and five continents. Notably, the share is above 50% for most years in most continents. This reflects the tremendous progress that has been made against extreme poverty in the last four decades. For instance, sustained poverty reduction occurs in more than 70 percent of countries in 06-10 and 11-15 in Africa and Asia, and in 06-10 in Europe. Interestingly, the period of 06-10, which spans much of the recent crisis originating in the United States, does not seem to have been a particularly bad year for poverty reduction globally. This highlights a separation of cycles between advanced and developing economies. Two eras of poor performance stand out, 1981 to 1995 in Africa, and 1985

> 8On the other hand, the use of the indicator variable means that we lose variation in poverty reduction rates. We examine the relationship between these poverty reduction rates and our key explanatory variables in Table A2 in the Appendix and show that this relationship is in line with the mechanisms postulated by the theoretical framework. However, these results are not useful in inferring threshold market sizes.

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