One-time boost can release poor from poverty trap - Bangladesh experiment shows
(MIT News) - Chronic poverty in the developing world can seem like an insoluble problem. But a long-term study from Bangladesh co-authored by an MIT economist presents a very different picture: When rural poor people get a one-time capital boost, it helps them accumulate assets, find better occupations, and climb out of poverty.
In particular, the study strongly suggests that poverty is not principally the product of people’s capabilities or attitudes. Rather, the very poor are usually mired in a poverty trap, in which an initial lack of resources prevents them from improving their circumstances. But the sudden acquisition of a productive asset — even, say, one cow — via a randomized asset transfer program can help spring the poor from that trap if it brings them above a basic wealth threshold. Instead of being farm laborers or domestic servants, rural people take up livestock rearing and more land cultivation, and sustain better incomes.
“The poor in these contexts are not unable to take on more productive employment, they simply lack the productive assets to do so,” says Clare Balboni, an assistant professor of economics at MIT and co-author of a published paper detailing the study’s findings.
The study adds evidence explaining what lies behind the success of “big push” antipoverty programs, which often center on significant one-time interventions. As the paper states, “big push policies which transform job opportunities represent a powerful means of addressing the global mass poverty problem.” Such programs have gained traction over the last 15 years or so.
The paper, “Why Do People Stay Poor?” appears in the May issue of the Quarterly Journal of Economics. The co-authors are Balboni, who is the 3M Development Assistant Professor of Environmental Economics in MIT’s Department of Economics; Oriana Bandiera, a professor of economics at the London School of Economics (LSE); Robin Burgess, a professor of economics at LSE; Maitreesh Ghatak, a professor of economics at LSE; and Anton
Mind the gap
To conduct the study, the scholars examined data from a long-term survey project involving 23,000 households in 1,309 villages, administered by BRAC, a major NGO in Bangladesh. That project included a specific antipoverty program covering 6,000 poor rural households: Women in half of those households were offered a one-time asset transfer of about $500 and complementary training and support in 2007, while the rest served as a control group after 2011, with surveys of the households conducted in 2007, 2009, 2011, 2014, and 2018.