Poverty traps in theory and in practice

Abstract

The poverty trap can be defined as a self-perpetuating cycle in which individuals and communities become trapped in persistent poverty due to a combination of economic factors that reinforce one another. The analysis draws on theoretical frameworks and real-world evidence, identifying mechanisms like capital market frictions, credit constraints, low savings, scarcity-driven conditions, low asset returns, poor nutrition, and suboptimal decision-making that contribute to entrapment. These challenges create a complex web, making it hard to escape poverty. However, the consequences of the poverty trap go beyond immediate struggles. Stagnant income and intergenerational poverty hinder individual progress and a nation's sustainable development, fostering inequality and limiting economic growth. To address the poverty trap, interventions or policies have been devised. Government transfers provide vital support to vulnerable households, easing immediate burdens. Microfinance empowers individuals to overcome credit constraints and invest in income-generating activities. The graduation program, linked to credit constraints, offers holistic support through financial aid, skill development, education, and social assistance, enabling a permanent escape from the poverty trap.

Date of Award	7 Sept 2023
Original language	English
Awarding Institution	University of Namur
Supervisor	Catherine Guirkinger (Supervisor)