Why Do People Stay Poor?

70 Pages Posted: 8 May 2020

See all articles by Clare Balboni

Clare Balboni

affiliation not provided to SSRN

Oriana Bandiera

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Robin Burgess

London School of Economics (LSE) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Maitreesh Ghatak

London School of Economics (LSE) - Department of Economics

Anton Heil

affiliation not provided to SSRN

Date Written: March 2020

Abstract

There are two broad views as to why people stay poor. One emphasizes the role of economic fundamentals - for example, differences in individual traits like talent or motivation make the poor choose low productivity jobs. The other, 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.

Suggested Citation

Balboni, Clare and Bandiera, Oriana and Burgess, Robin and Ghatak, Maitreesh and Heil, Anton, Why Do People Stay Poor? (March 2020). CEPR Discussion Paper No. DP14534, Available at SSRN: https://ssrn.com/abstract=3594155

Clare Balboni (Contact Author)

affiliation not provided to SSRN

No Address Available

Oriana Bandiera

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7519 (Phone)
+44 20 7055 6951 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

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

Robin Burgess

London School of Economics (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://econ.lse.ac.uk/staff/rburgess/index_own.html

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Maitreesh Ghatak

London School of Economics (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
44 20 7852 3568 (Phone)
44 20 7955 6951 (Fax)

HOME PAGE: http://sticerd.lse.ac.uk/dps/adds/ghatak/cv-lse-sept02.pdf

Anton Heil

affiliation not provided to SSRN

No Address Available

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