Poverty trap
Topic: Poverty and Inequality: Measurement and Policy · NCERT: Beyond NCERT
Meaning
A poverty trap is a self-reinforcing threshold. Below it, people or countries stay poor because a lack of savings, nutrition, credit or education blocks any rise in income. Common types are:
- Nutrition trap: too little food leads to low work capacity, then a low wage, then too little food again.
- Credit trap: a person with no collateral borrows from a moneylender at high interest and falls into debt.
- Health-shock trap: an illness forces the sale of assets.
- Nelson's low-level equilibrium trap (1956): any rise in per capita income triggers faster population growth, which pulls income back down.
Example
A landless labourer in India has no collateral for a bank loan. So they borrow from a moneylender at high interest and repayments eat up future earnings. Banerjee and Duflo (Poor Economics, 2011) found that such traps exist for some people and situations, not everywhere. Ways out include asset transfers such as livestock plus training in "graduation" programmes.
Don't confuse with
- Nurkse's vicious circle of poverty (1953): a country-level chain in which low income leads to low saving and investment, which keeps income low. It is a broad cycle, while a trap stresses a threshold that must be crossed.