Persistent poverty: an economist’s view
Watch our #KAPTalks with Prof. Orianda Bandiera who discussed opportunities, investments and policies for truly eradicating poverty.
This lecture proposes a test between the two main economic views of poverty. In the first, the poor start at a low level of human and physical capital but that does not affect the opportunities they have access to. This is a world where everybody will end up with the same standard of living in the long run, adjusting for preferences, ability, and luck. Policies can speed the process but will have no lasting effect once they are removed. For this reason, poverty reduction policies are justifiable on equity grounds alone.
In the second, the starting level of physical and human capital determines the opportunities individuals have access to, and so two individuals who are identical in terms of preferences and ability, but differ in terms of initial wealth will have very different opportunities. This is a world where initial conditions determine where you end up and the effect of policies can have long-term effects well beyond their implementation; for this reason, anti-poverty policies can serve both the objectives of equity and efficiency.
Evidence from a four year panel of over 23K poor households in rural Bangladesh provides strong support to the unequal opportunities view. The poor have access to fewer opportunities and only a sizeable investment can get them out of the poverty trap and onto the same trajectory as those starting out with more resources. The model and data are used to simulate the effect of different policies from micro-finance to cash transfers. We conclude that only a big push policy can truly eradicate poverty.
Organized in partnership with:
Oriana Bandiera is the Sir Anthony Atkinson Professor of Economics and the Director of the Suntory and Toyota Centre for Economics and Related Disciplines (STICERD) at the London School of Economics. She is Director of the research programme in State Capabilities within the International Growth Centre (IGC), and of the research programme in Development Economics at CEPR.
Her research focuses on the ways in which incentives affect people’s behaviour, and how far these effects depend on social context or social relationships.She is co-editor of Microeconomic Insights, the Journal of Labor Economics and Economica and a fellow of the British Academy, the Econometric Society, CEPR, BREAD and IZA. Professor Bandiera was the 2011 recipient of Carlo Alberto medal, which is awarded biennially to an Italian economist under the age of 40 for outstanding research contributions to the field of economics.
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