Rural day laborers account for a large share of the global poor. This paper asks whether their state of persistent poverty is due to innate traits that make them unproductive at more remunerative occupations or, in contrast, whether it is poverty itself that limits opportunities and traps them in poverty. We provide evidence using a randomized control trial of an asset transfer program in Bangladesh with data on 23 thousand individuals from across the wealth distribution in 1309 villages, surveyed four times between 2007 and 2014. We find that a large share of beneficiaries were in a poverty trap. We identify the threshold level of initial capital such that individuals close to it escape poverty whereas those further away fall back into poverty. We use data from control villages to show that: (i) there is a missing mass around the threshold; (ii) differences in individual productivity or random shocks to productive assets cannot explain the response to the program. We test three possible mechanisms underlying the trap — nutritional, behavioral, and technological and find evidence only for the last. We discuss the implications of our results for the design of policies to reach the extreme poor and eliminate global poverty.
The Development Economics Vice Presidency (DEC) launched its lecture series in April 2005 to bring distinguished academics to the Bank to present and discuss new knowledge on development. The purpose of the Lecture Series is to introduce ideas on cutting edge research, challenge and contribute to the Bank's intellectual climate, and reexamine current development theories and practices. The Lectures revisit issues of long-standing concern and explore emerging issues that promise to be central to future development discourse. The Lecture Series reflects DEC’s commitment to intellectual leadership and openness in embracing future challenges to reduce poverty.
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