Do Poverty Traps Exist?

27 Pages Posted: 20 Apr 2016

See all articles by Aart Kraay

Aart Kraay

World Bank - Development Research Group (DECRG)

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Date Written: April 1, 2014

Abstract

This paper reviews the empirical evidence on the existence of poverty traps, understood as self-reinforcing mechanisms through which poor individuals or countries remain poor. Poverty traps have captured the interest of many development policy makers, because poverty traps provide a theoretically coherent explanation for persistent poverty. They also suggest that temporary policy interventions may have long-term effects on poverty. However, a review of the reduced-form empirical evidence suggests that truly stagnant incomes of the sort predicted by standard models of poverty traps are in fact quite rare. Moreover, the empirical evidence regarding several canonical mechanisms underlying models of poverty traps is mixed.

Keywords: Rural Poverty Reduction, Achieving Shared Growth, Economic Theory & Research, Debt Markets, Poverty Reduction Strategies

Suggested Citation

Kraay, Aart and McKenzie, David John, Do Poverty Traps Exist? (April 1, 2014). World Bank Policy Research Working Paper No. 6835. Available at SSRN: https://ssrn.com/abstract=2422157

Aart Kraay (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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202-473-5756 (Phone)
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HOME PAGE: http://econ.worldbank.org/staff/akraay

David John McKenzie

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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