Do Poverty Traps Exist? Assessing the Evidence

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.