Hakki Yazici
Slavík Ctirad
Kina Özlem
Tilman Graff
Tilman Graff
Yuri Ostrovsky
Martin Munk
Anton Heil
Maitreesh Ghatak
Robin Burgess
Oriana Bandiera
Claire Balboni
Jonna Olsson
Richard Foltyn
Minjie Deng
Iiyana Kuziemko
Elisa Jácome
Juan Pablo Rud
Bridget Hofmann
Sumaiya Rahman
Martin Nybom
Stephen Machin
Hans van Kippersluis
Anne C. Gielen
Espen Bratberg
Jo Blanden
Adrian Adermon
Maximilian Hell
Robert Manduca
Robert Manduca
Marta Morazzoni
Aadesh Gupta
David Wengrow
Damian Phelan
Amanda Dahlstrand
Andrea Guariso
Erika Deserranno
Lukas Hensel
Stefano Caria
Vrinda Mittal
Ararat Gocmen
Clara Martínez-Toledano
Yves Steinebach
Breno Sampaio
Joana Naritomi
Diogo Britto
François Gerard
Filippo Pallotti
Heather Sarsons
Kristóf Madarász
Anna Becker
Lucas Conwell
Michela Carlana
Katja Seim
Joao Granja
Jason Sockin
Todd Schoellman
Paolo Martellini
UCL Policy Lab
Natalia Ramondo
Javier Cravino
Vanessa Alviarez
Hugo Reis
Pedro Carneiro
Raul Santaeulalia-Llopis
Diego Restuccia
Chaoran Chen
Brad J. Hershbein
Claudia Macaluso
Chen Yeh
Xuan Tam
Xin Tang
Marina M. Tavares
Adrian Peralta-Alva
Carlos Carillo-Tudela
Felix Koenig
Joze Sambt
Ronald Lee
James Sefton
David McCarthy
Bledi Taska
Carter Braxton
Alp Simsek
Plamen T. Nenov
Gabriel Chodorow-Reich
Virgiliu Midrigan
Corina Boar
Sauro Mocetti
Guglielmo Barone
Steven J. Davis
Nicholas Bloom
José María Barrero
Thomas Sampson
Adrien Matray
Natalie Bau
Darryl Koehler
Laurence J. Kotlikoff
Alan J. Auerbach
Irina Popova
Alexander Ludwig
Hakki Yazici
Slavík Ctirad
Kina Özlem
Tilman Graff
Tilman Graff
Yuri Ostrovsky
Martin Munk
Anton Heil
Maitreesh Ghatak
Robin Burgess
Oriana Bandiera
Claire Balboni
Jonna Olsson
Richard Foltyn
Minjie Deng
Iiyana Kuziemko
Elisa Jácome
Juan Pablo Rud
Bridget Hofmann
Sumaiya Rahman
Martin Nybom
Stephen Machin
Hans van Kippersluis
Anne C. Gielen
Espen Bratberg
Jo Blanden
Adrian Adermon
Maximilian Hell
Robert Manduca
Robert Manduca
Marta Morazzoni
Aadesh Gupta
David Wengrow
Damian Phelan
Amanda Dahlstrand
Andrea Guariso
Erika Deserranno
Lukas Hensel
Stefano Caria
Vrinda Mittal
Ararat Gocmen
Clara Martínez-Toledano
Yves Steinebach
Breno Sampaio
Joana Naritomi
Diogo Britto
François Gerard
Filippo Pallotti
Heather Sarsons
Kristóf Madarász
Anna Becker
Lucas Conwell
Michela Carlana
Katja Seim
Joao Granja
Jason Sockin
Todd Schoellman
Paolo Martellini
UCL Policy Lab
Natalia Ramondo
Javier Cravino
Vanessa Alviarez
Hugo Reis
Pedro Carneiro
Raul Santaeulalia-Llopis
Diego Restuccia
Chaoran Chen
Brad J. Hershbein
Claudia Macaluso
Chen Yeh
Xuan Tam
Xin Tang
Marina M. Tavares
Adrian Peralta-Alva
Carlos Carillo-Tudela
Felix Koenig
Joze Sambt
Ronald Lee
James Sefton
David McCarthy
Bledi Taska
Carter Braxton
Alp Simsek
Plamen T. Nenov
Gabriel Chodorow-Reich
Virgiliu Midrigan
Corina Boar
Sauro Mocetti
Guglielmo Barone
Steven J. Davis
Nicholas Bloom
José María Barrero
Thomas Sampson
Adrien Matray
Natalie Bau
Darryl Koehler
Laurence J. Kotlikoff
Alan J. Auerbach
Irina Popova
Alexander Ludwig

Why do people stay poor?

What is this research about and why did you do it?

Why do people stay poor? Is it a matter of ability or motivation pushing people into low-productivity jobs (equal opportunity view),or do barriers stemming from unequal access to resources trap them in low-wage occupations (poverty trap view)? This question is crucial for designing effective policies. In the presence of poverty traps, policy can be more effective by focusing on pushing individuals above the threshold required to access more productive occupations and build lasting wealth, rather than long-term consumption and income support. Understanding the root causes helps to enable targeted solutions to break the cycle of poverty and promote economic mobility.

How did you answer this question?

We analyse data from a large-scale asset transfer programme, BRAC's Targeting the Ultra-Poor programme, in northern Bangladesh, a region afflicted by extreme poverty and limited job opportunities. We exploit the randomized transfer of valuable assets, typically cows, and an 11-year panel of 6,000 extremely poor households. By examining changes in assets, occupations, and consumption, we assess whether long-run dynamics in these outcomes are consistent with the central prediction of poverty trap models that a one-time policy can have permanent effects by lifting people out of the trap.

What did you find?

Our findings suggest that the dynamics of asset accumulation follow a pattern characteristic of a poverty trap. Figure 1 shows a threshold level of initial productive assets, above which households continue to accumulate wealth, while those below slide back into poverty. Structural estimation of an occupational choice model reveals that almost all programme beneficiaries are initially misallocated in low-productivity occupations, and that correcting this misallocation would generate benefits that substantially outweigh the program’s costs. These findings underscore the potential for large-scale targeted asset transfer interventions to help break the cycle of poverty.

Local polynomial regression estimate of the transition equation of productive assets in 2011 vs. past transfer assets in 2007. The dashed 45 degree line represents where assets remain constant. The S-shaped curve illustrates how households above the asset threshold continue to accumulate assets over 4 years, while those below lose assets, providing evidence of a poverty trap

What implications does this have for the study (research and teaching) of wealth concentration or economic inequality?

The existence of poverty traps has important implications for poverty alleviation policies. Our findings suggest that big-push but time-limited approaches might be more effective in improving the welfare of the world’s extreme poor than ongoing consumption- or income-support programmes which are widespread around the world. This highlights the importance of reconsidering our approach to addressing global poverty, emphasising policies that transform employment opportunities for the poor.

What are the next steps in your agenda?

The findings of this research raise several questions about the generalizability of the results to other context and interventions, including work that varies the design of the programme or considers related interventions in urban settings.

Citation and related resources

Balboni, C., Bandiera, O., Burgess, R., Ghatak, M., and Heil, A. Why Do People Stay Poor?, The Quarterly Journal of Economics, Volume 137, Issue 2, May 2022, Pages 785–844

Related resources:

About the authors

Maitreesh Ghatak
Anton Heil

PhD Candidate in Economics, Department of Economics, LSE

Anton Heil