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Poverty traps: the neglected role of vitality

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  • Meysonnat, Aline

    () (SBE, Maastricht University)

  • Muysken, Joan

    () (UNU-MERIT, and SBE, Maastricht University)

  • Zon, Adriaan van

    () (UNU-MERIT, and SBE, Maastricht University)

Abstract

This paper proposes an integrated framework that incorporates both the "physical" and the "behavioural" dimensions of poverty in developing countries and their consequences for aggregate savings behaviour. To this end a concept is introduced, labelled "vitality", which captures the idea that being near subsistence consumption levels not only has an impact on the ability to save, but also on the willingness to save. We introduce the notion of a "vitality threshold" which marks a situation where the willingness to invest into the future changes - this is represented by a change in the discount rates. The recognition of transition paths from a "pessimistic", low-savings regime with high discount rates to an "optimistic" regime with relatively high savings enables us to analyse the transition of countries through various stages of development. In addition to this, we can shed new light on poverty traps by looking at below subsistence consumption scenarios. Finally we can infer specific policy implications concerning development aid. For instance, if a country is in a pessimistic, low-savings regime, we argue that a transfer should be high enough to push a country above the subsistence-level consumption threshold by far enough to enable it to reach the optimistic, high savings regime and consequently grow out of poverty. The existence of vitality thresholds implies that marginal changes in development assistance may have non-marginal long-term effects

Suggested Citation

  • Meysonnat, Aline & Muysken, Joan & Zon, Adriaan van, 2015. "Poverty traps: the neglected role of vitality," MERIT Working Papers 052, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2015052
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    File URL: https://www.merit.unu.edu/publications/wppdf/2015/wp2015-052.pdf
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    Cited by:

    1. Mideros Mora, Andres & Gassmann, Franziska, 2017. "Fostering social mobility: The case of the 'Bono de Desarrollo Humano' in Ecuador," MERIT Working Papers 002, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

    More about this item

    Keywords

    poverty trap; subsistence consumption; vitality; foreign aid;

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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