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Why Do People Stay Poor?

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

Abstract

There are two views as to why people stay poor. The equal opportunity view emphasizes that differences in individual traits like talent or motivation make the poor choose low productivity jobs. The poverty traps view emphasizes that access to opportunities depends on initial wealth and hence poor people have no choice but to work in low productivity jobs. We test the two views using the random allocation of an asset transfer program that gave some of the poorest women in Bangladesh access to the same job opportunities as their wealthier counterparts in the same villages. The data rejects the null of equal opportunities. Exploiting small variation in initial endowments, we estimate the transition equation and find that, if the program pushes individuals above a threshold level of initial assets, then they escape poverty, but, if it does not, they slide back into poverty. Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated at baseline and that the gains arising from eliminating misallocation would far exceed the costs. Our findings imply that large one-off transfers that enable people to take on more productive occupations can help alleviate persistent poverty.

Suggested Citation

  • Clare Balboni & Oriana Bandiera & Robin Burgess & Maitreesh Ghatak & Anton Heil, 2020. "Why Do People Stay Poor?," STICERD - Economic Organisation and Public Policy Discussion Papers Series 067, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stieop:067
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    7. Banerjee, Abhijit & Karlan, Dean & Osei, Robert & Trachtman, Hannah & Udry, Christopher, 2022. "Unpacking a multi-faceted program to build sustainable income for the very poor," Journal of Development Economics, Elsevier, vol. 155(C).
    8. Dasgupta, Dyotona & Saha, Anuradha, 2022. "Perceptions, biases, and inequality," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 198-210.
    9. Kondylis,Florence,Loeser,John Ashton, 2021. "Intervention Size and Persistence," Policy Research Working Paper Series 9769, The World Bank.
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    11. Linden McBride & Christopher B. Barrett & Christopher Browne & Leiqiu Hu & Yanyan Liu & David S. Matteson & Ying Sun & Jiaming Wen, 2022. "Predicting poverty and malnutrition for targeting, mapping, monitoring, and early warning," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 44(2), pages 879-892, June.
    12. Khorana, Sangeeta & Caram, Santiago & Biagetti, Marco, 2021. "Developmental relevance of Everything but Arms: Implications for Bangladesh after LDC graduation," MPRA Paper 116258, University Library of Munich, Germany.
    13. Oriana Bandiera & Robin Burgess & Erika Deserranno & Ricardo Morel & Imran Rasul & Munshi Sulaiman & Jack Thiemel, 2022. "Microfinance and Diversification," Economica, London School of Economics and Political Science, vol. 89(S1), pages 239-275, June.
    14. Alessio Fusco & Philippe Van Kerm, 2023. "Measuring poverty persistence," Chapters, in: Jacques Silber (ed.), Research Handbook on Measuring Poverty and Deprivation, chapter 18, pages 192-200, Edward Elgar Publishing.
    15. Janz, Teresa & Augsburg, Britta & Gassmann, Franziska & Nimeh, Zina, 2023. "Leaving no one behind: Urban poverty traps in Sub-Saharan Africa," World Development, Elsevier, vol. 172(C).
    16. Paul,Boban Varghese & Dutta,Puja Vasudeva & Chaudhary,Sarang, 2021. "Assessing the Impact and Cost of Economic Inclusion Programs : A Synthesis of Evidence," Policy Research Working Paper Series 9536, The World Bank.
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    18. Fatkhurrohman, 2021. "Access to Fintech and Poverty : Evidence from the Arrival of 4G Networks in Indonesia," Warwick-Monash Economics Student Papers 24, Warwick Monash Economics Student Papers.
    19. Louis Charlot, 2021. "Bayesian hierarchical analysis of a multifaceted program against extreme poverty," Papers 2109.06759, arXiv.org.
    20. Valencia Caicedo, Felipe & Riano, Juan Felipe, 2020. "Collateral Damage: The Legacy of the Secret War in Laos," CEPR Discussion Papers 15349, C.E.P.R. Discussion Papers.
    21. Altındağ, Onur & O’Connell, Stephen D., 2023. "The short-lived effects of unconditional cash transfers to refugees," Journal of Development Economics, Elsevier, vol. 160(C).
    22. Giulia Malevolti & Donato Romano, 2023. "Poverty dynamics and poverty traps among refugee and host communities in Uganda," Working Papers - Economics wp2023_04.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    23. Furio Camillo Rosati, 2022. "Child Labour Theories and Policies," CEIS Research Paper 533, Tor Vergata University, CEIS, revised 15 Mar 2022.
    24. Kumar, Tanu, 2021. "The housing quality, income, and human capital effects of subsidized homes in urban India," Journal of Development Economics, Elsevier, vol. 153(C).

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    More about this item

    Keywords

    poverty traps; misallocation;

    JEL classification:

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

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