2 broad views why people stay poor:
- Emphasis on the role of economic fundamentals: differences in individual traits, talent, motivation
- Poverty traps: access to opportunities depends on initial wealth, poor people have no choice but to work in low productivity jobs.
We test the two views: randomly allocate an asset transfer program and give some of the poorest women in Bangldesh access to the same job opportunities as their wealthier couterparts in the same village. We show that if the program pushes individuals above a threshold level of initial assets, they escape poverty and accumulate capital, approaching the level of the richer classes; but if it does not, they slide back and are trapped.
Our findings imply that large one-off transfers that enable people to take on more productive occupations can help alleviate persistent poverty.
The main contribution of this paper is to provide an empirical test for the existence of poverty traps using individual-level data.
We show that poverty traps exist, people are poor because of a lack of opportunity. It is not their intrinsic characteristics that trap people in poverty but rather their circumstances. Poverty is not an innate condition.