Working Paper: CEPR ID: DP14534
Authors: Oriana Bandiera; Robin Burgess; Maitreesh Ghatak; Clare Balboni; Anton Heil
Abstract: There are two broad views as to why people stay poor. One emphasizes the role of economic fundamentals - for example, differences in individual traits like talent or motivation make the poor choose low productivity jobs. The other, the poverty traps view, emphasizes that access to opportunitiesdepends on initial wealth and hence poor people have no choice but to work in low productivity jobs. We test the two views using the random allocation ofan asset transfer program that gave some of the poorest women in Bangladesh access to the same job opportunities as their wealthier counterpartsin the same villages. The data rejects the null of equal opportunities. Exploiting small variation in initial endowments, we estimate the transition equation and find that, if the program pushes individuals above a threshold level of initial assets, then they escape poverty, but, if it does not, they slide back into poverty. Structural estimation of an occupational choice modelreveals that almost all beneficiaries are misallocated at baseline and that the gains arising from eliminating misallocation would far exceed the costs. Our findings imply that large one-off transfers that enable people to take on more productive occupations can help alleviate persistent poverty.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| below threshold level of capital (G33) | lose asset value (G32) |
| above threshold level of capital (E22) | accumulate assets (D14) |
| technological indivisibilities and credit market imperfections (O14) | prevent acquiring necessary assets (G32) |
| large one-off transfers (H87) | alleviate persistent poverty (I32) |
| initial asset endowments (D29) | transition equations (J62) |
| threshold level of initial assets (G19) | escape poverty (I32) |
| poverty traps (I32) | misallocation of beneficiaries (D61) |
| asset transfer program (H82) | escape poverty (I32) |