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Why Do People Stay Poor?

Author

Listed:
  • Clare Balboni
  • Oriana Bandiera
  • Robin Burgess
  • Maitreesh Ghatak
  • Anton Heil

Abstract

There are two broad views as to why people stay poor. One emphasizes differences in fundamentals, such as ability, talent, or motivation. The poverty traps view emphasizes differences in opportunities that stem from access to wealth. To test these views, we exploit a large-scale, randomized asset transfer and an 11-year panel of 6,000 households who begin in extreme poverty. The setting is rural Bangladesh, and the assets are cows. The data support the poverty traps view—we identify a threshold level of initial assets above which households accumulate assets, take on better occupations (from casual labor in agriculture or domestic services to running small livestock businesses), and grow out of poverty. The reverse happens for those below the threshold. Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated in the work they do at baseline and that the gains arising from eliminating misallocation would far exceed the program costs. Our findings imply that large transfers, which create better jobs for the poor, are an effective means of getting people out of poverty traps and reducing global poverty.

Suggested Citation

  • Clare Balboni & Oriana Bandiera & Robin Burgess & Maitreesh Ghatak & Anton Heil, 2023. "Why Do People Stay Poor?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(2), pages 785-844.
    • Handle: RePEc:oup:qjecon:v:137:y:2023:i:2:p:785-844.
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    File URL: http://hdl.handle.net/10.1093/qje/qjab045
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    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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