Why do people stay poor?

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

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

JEL-codes: I32 J22 J24 O12 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2022-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published in Quarterly Journal of Economics, 1, May, 2022, 137(2), pp. 785 - 844. ISSN: 0033-5533

Downloads: (external link)
http://eprints.lse.ac.uk/111839/ Open access version. (application/pdf)

Related works:
Journal Article: Why Do People Stay Poor? (2023)
Working Paper: Why do people stay poor? (2021)
Working Paper: Why Do People Stay Poor? (2020)
Working Paper: Why do people stay poor? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:111839

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