Do Poverty Traps Exist? Assessing the Evidence

By Aart C. Kraay, David J. McKenzie. 2014

311 citations recorded by the source corpus.

Why did per capita incomes not increase in Burundi, Haiti, and Nicaragua countries? One possible explanation is a poverty trap, which can be understood as a set of self-reinforcing mechanisms whereby countries start poor and remain poor: poverty begets poverty, so that current poverty is itself a direct cause of poverty in the future. It implies that much poverty is needless, in the sense that a different equilibrium is possible and also that one-time policy efforts that break the poverty trap may have lasting effects. The concept of a poverty trap at the level of national economies is related to, and sometimes based on, microeconomic foundations that argue for the existence of poverty traps at the household level. The authors discuss behavioral poverty traps as a recent area of research for which the evidence is just starting to accumulate, and geographic poverty traps as the most likely form of a trap. The policy prescriptions that result are then quite different from the calls for a big push in aid or expansion of microfinance to allow people to overcome credit constraints.

Subfields: Business and International Management, Safety Research, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/f0342f950917c5aff52266b9cdf6d67e174b44e7

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Citations in the corpus

The Persistent Power of Behavioral Change: Long-Run Impacts of Temporary Savings Subsidies for the Poor (2018, unknown): “One implication of my results is that some low-income entrepreneurs with high marginal returns to capital may have these high returns because they are stuck in a behavioral poverty trap (Kraay and McKenzie 2014).”
Well-Being Dynamics and Poverty Traps (2016, background): “Kraay & McKenzie (2014) review the literature on country level, big-push/coordination failure, hunger/nutrition-based, and entrepreneurial (i.e. borrowing constraints combined with non-convex production technologies) poverty traps and conclude that poverty traps “are rare and largely limited to…”
Theories of Poverty Traps and Anti-Poverty Policies (2015, background): “…fail to find any direct evidence of lumpiness of investments or find that microfinance loans have not been effective in reducing poverty significantly, alone is not suffi cient to conclude that there is limited empirical support in favour of poverty traps (as Kraay and McKenzie, 2014 argue).”