Poverty traps: the neglected role of vitality

Aline Meysonnat (), Joan Muysken () and Adriaan van Zon
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Aline Meysonnat: SBE, Maastricht University
Joan Muysken: UNU-MERIT, and SBE, Maastricht University

No 2015-052, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

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

Keywords: poverty trap; subsistence consumption; vitality; foreign aid (search for similar items in EconPapers)
JEL-codes: E21 F35 I12 I13 I15 I31 I32 O10 O20 (search for similar items in EconPapers)
Date: 2015-12-01
New Economics Papers: this item is included in nep-gro and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2015052

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