Armutsfalle

Emirische Anaylse

Do Poverty Traps Exist? Assessing the Evidence

Wichtige Konzepte

Poverty trap

• Self-reinforcing mechanism so that poor countries stay poor
• Inspired from Micro -> Household level poverty

Simple model of poverty trap at country level

• Specific constellations and assumptions such that the savings rate equals the depreciation rate at a low equilibrium.
• Suggest that poor countries

Evidence on the Persistence of poverty

• Data since WW2!!
• Absolute stagnation is rare
• Poorest countries expedierend even slightly higher growth rates than the world average. -> but higher variance
• Evidence contradicts with the poverty trap model because:
  • (1) Poverty trap model implies stagnation for low levels of development -> Data show that stagnation is both rare and not systematically associated with initial development level
  • (2) Poverty trap model has a threshold above which a country can exit it and accelerate growth. But data show average positiv growth in poor countries, thus suggesting that some crossed this threshold -> Unless the thresholds (below which countries are trapped in poverty) are very high, most countries will grow out of poverty
• Conclusion: Poverty traps are not widespread (macro and micro)

Theoretical Mechanisms

Saving-Based Poverty Traps

• Countries are to poor to save -> no accumulate capital -> incomes only grow by rate of total factor productivity growth
• If productivity growth is close to zero -> incomes a stagnant
• (1) Evidence suggest that the threshold of income where savings start to increase is low
• (2) Evidence suggest growth reflects the balance of tow forces: *
  1. Low level of development -> marginal utility of consumption is high -> lowers savings -> slows growth
  2. Low level of development -> Low level of capital investment -> diminishing returns of capital have not been reached -> marginal product of capital is high -> increase saving, investment, growth
• If this is true why are countries with different levels of poverty have stagnation

Big-Push Model

• Modern sectors of the economy have increasing returns to scale
• Traditional sectors have constant returns to scale
• Poor countries have allocated their resources in the traditional sector
• A “big-push” is needed to reallocated the majority of the resources in a modern sector.
• Evidence is spares -> Difficult to measure

Nutritional Poverty Traps

• Non-linear relationship between food intake and physical work capacity
• individuals are malnourished -> not physically capable of productive work -> not earning enough food -> malnourishment
• Evidence
  • Normally calories are to cheap for that to happen -> Exceptions may be famines or plagues -> time limited
  • Large literature concludes that deficiencies in early childhood has long lasting impacts -> long-term benefit of early intervention

Lumpy Investments Coupled with Borrowing Constraints