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Why do people stay poor?

Baboni, Clare, Bandiera, Oriana, Burgess, Robin, Ghatak, Maitreesh and Heil, Anton (2022) Why do people stay poor? Quarterly Journal of Economics, 137 (2). 785 - 844. ISSN 0033-5533

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Identification Number: 10.1093/qje/qjab045

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.

Item Type: Article
Official URL: https://academic.oup.com/qje
Additional Information: © 2021 The Authors
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
JEL classification: I - Health, Education, and Welfare > I3 - Welfare and Poverty > I32 - Measurement and Analysis of Poverty
J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J22 - Time Allocation and Labor Supply
J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
Date Deposited: 02 Sep 2021 09:36
Last Modified: 05 May 2022 09:45
URI: http://eprints.lse.ac.uk/id/eprint/111839

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