Poverty Traps: Do They Exist?

The idea that poor people or countries can get stuck in poverty through self-reinforcing cycles, and what evidence says about escaping them.

A poverty trap is a situation where poverty itself creates conditions that keep people poor. If a trap exists, a small amount of help may not be enough, but a large enough push could set people on a path out of poverty for good.

How traps might work

Economists have proposed several mechanisms:

Nutrition: people who cannot afford enough food may be too weak to work productively, keeping incomes low.
Assets: without livestock, tools or savings, households cannot earn enough to buy them.
Credit: without collateral, the poor cannot borrow to invest.
Risk: poor households avoid risky but profitable investments because a loss would be disastrous.
Psychology: the stress of scarcity can make decisions harder.

At the level of countries, some economists, including Jeffrey Sachs, argued that the poorest countries were trapped by disease, poor infrastructure and low savings, and needed a big push of aid to escape. Others, like William Easterly, were sceptical.

The evidence

In their 2011 book Poor Economics, Abhijit Banerjee and Esther Duflo argued that poverty traps exist in some areas but not others. The question must be answered case by case.

An important test came from graduation programmes, which give very poor households a large package: an asset like livestock, training, cash support and savings help. A study published in Science in 2015 tested this across six countries and found lasting gains in income and consumption. A long-term study in Bangladesh by Oriana Bandiera and colleagues found that women who received livestock and training moved into more stable work and stayed better off years later, while those just below the threshold of support did not.

Crossing the threshold

A woman earns a meagre living as a casual farm labourer. She cannot save enough to buy a cow. A programme gives her two cows and training. With milk sales, she earns more, saves, buys more animals and eventually runs a small dairy business. A one-time boost moved her across a threshold that she could not cross alone.

Thinking the poor stay poor because of their choices

Research on poverty traps shows that the constraints poor people face, such as lack of assets, credit and insurance, can make escape very hard regardless of effort. Removing these constraints can have lasting effects.

Key takeaways

A poverty trap is when poverty creates conditions that keep people poor.
Mechanisms include lack of assets, credit, nutrition and insurance.
Evidence suggests traps exist in some settings but not all.
Graduation programmes giving assets and support have produced lasting gains.