Research

Poverty traps are among the most influential yet elusive ideas in economics. This chapter reviews the challenges involved in identifying poverty traps and surveys the progress made over the past quarter century. It examines both individual and societal traps, and explores the links between them. Individual traps are feedback mechanisms that make poverty self-reinforcing. Societal poverty traps arise when interactions between workers or firms create complementarities which can lead to multiple equilibria at an aggregate level. We also discuss evidence on the mechanisms that underlie each of these traps. We highlight open questions and draw policy implications.

Graduation programs provide a targeted bundle of interventions that address participants basic needs, kick start income generating activities through asset and skill transfers, facilitate financial inclusion and promote social empowerment. This approach has been adapted to many contexts, but the goal is always to permanently improve participants welfare by enabling them to take up profitable and self-sustaining work. Initially developed in the non-government sector, the approach is increasingly incorporated into governments’ social protection schemes around the world. This chapter details the workings of the graduation approach, the philosophy behind its design, its diverse applications, and the evidence of its impact.

There are two broad views as to why people stay poor. One emphasizes differences in fundamentals, such as ability, talent, or motivation. The poverty traps view emphasizes differences in opportunities that stem from access to wealth. To test these views, we exploit a large-scale, randomized asset transfer and an 11-year panel of 6,000 households who begin in extreme poverty. The setting is rural Bangladesh, and the assets are cows. The data support the poverty traps view—we identify a threshold level of initial assets above which households accumulate assets, take on better occupations (from casual labor in agriculture or domestic services to running small livestock businesses), and grow out of poverty. The reverse happens for those below the threshold. Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated in the work they do at baseline and that the gains arising from eliminating misallocation would far exceed the program costs. Our findings imply that large transfers, which create better jobs for the poor, are an effective means of getting people out of poverty traps and reducing global poverty.

The Jobs of the World Project is a public resource designed to enable research on jobs and poverty across and within countries over the entire development spectrum. At its core is a new dataset assembled by harmonising Demographic and Health Surveys (DHS) and National Censuses (IPUMS) for all countries and all years after 1990 where data is available. The current version covers 115 countries, observed four times on average. We use the data to show how the nature of jobs and their allocation vary within countries by wealth and gender and across countries by stages of development. We discuss evidence that shows how disparities at the micro level lead to a misuse of human potential that links individual poverty to national income.

This paper examines the link between electoral incentives and environmental degradation by exploiting a satellite dataset on 107,000 forest fires and 879 asynchronous district elections in Indonesia. Fires represent a cheap but illegal means of converting forested land to other uses, but they risk burning out of control and creating substantial negative environmental externalities. We find a significant electoral cycle in forest fires. Ignitions and area burned decline during election years but steeply increase in the year after. The results suggest that politicians may suppress this activity at times when it might particularly dent their electoral chances.

The paper introduces, formalizes, and tests the idea of occupation-based linkages between industries. Industries are linked through their common requirement of specialised skills. Occupations capture those specific skills and allow us to measure them. We first validate this intuition by documenting that occupational variety systematically rises with economic development (and industrial variety) across countries and across regions within Brazil. We then use detailed micro-data from Brazil to show that new industries and occupations emerge jointly, forming a bi-directional network where industries hire multiple, overlapping occupations and occupations work in multiple, overlapping industries. To explain these facts, we construct a model of industrialisation with occupation-based linkages. Contrary to standard models where industries would compete over specialised workers, we show that positive externalities between industries can arise, e.g. if there are matching frictions and entry of one industry thickens the labour market for the occupations it requires. Finally, using a shift-share instrument approach, we show that occupation-based linkages are positive and of a similar magnitude as traditional input-output linkages. In line with the model, a regions position in the industry-occupation network predicts the direction of industrialisation and regional growth. The results imply that education/training and industrial policies are complements and that targeting bottleneck occupations can unlock cascades of diversification.

The overlapping incidence of poverty and climate damages globally raises the question of whether and how poverty makes people more vulnerable to worsening weather shocks. To study this question, we overlay high-resolution, satellite-based drought and flood measures on household survey panel data from the randomized evaluation of a flagship anti-poverty graduation program in Bangladesh. The comparison of households that were equally poor before a randomly chosen group of them were given the graduation program reveals that the poorest bear the brunt of negative consumption impacts from unpredictable weather shocks. Those lifted out of poverty by the program do not reduce consumption and this protection is sustainable because it is achieved by diversifying labor activities rather than divesting assets. Programs that generate and diversify income generating activities are thus a promising means of enhancing the climate resilience of the extreme poor and avoiding adding to their numbers in the future.

Public works programs are among the most common social protection schemes in low and middle-income countries. They have the potential to offer effective social protection to agriculture-dependent communities facing increasingly frequent and severe weather. Yet, one important aspect of these programs is understudied: does the public infrastructure constructed through the programs improve agricultural productivity and resilience? To tackle this question, I assemble a novel dataset of 80 million small-scale infrastructure projects constructed through India’s public works program (NREGA). Preliminary results show that the amount and type of construction respond to local weather shocks.