Why Do People Stay Poor?

Clare Balboni, Oriana Bandiera, Robin Burgess, Maitreesh Ghatak and Anton Heil

STICERD - Economic Organisation and Public Policy Discussion Papers Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

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.

Keywords: poverty traps; misallocation (search for similar items in EconPapers)
JEL-codes: O10 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-dev, nep-exp and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Why Do People Stay Poor? (2023)
Working Paper: Why do people stay poor? (2022)
Working Paper: Why do people stay poor? (2021)
Working Paper: Why do people stay poor? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stieop:067

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