What is a “ Poverty Trap ”?


Poverty Trap is a re-incurring mechanism where poor people remain poor. It is a state where poor people can’t get out of the cyclical pattern of poverty. In economic theory, poverty trap is a self-perpetuating condition where an economy, caught in a vicious cycle, suffers from persistent underdevelopment.

Prof. Ragnar Nurkse, an Estonian economist, first defined the theory of poverty trap as a vicious circle in 1953. According to Prof. Nurkse, “ poverty trap implies a circular constellation of forces tending to act and react to one another in such a way as to keep a poor country in a state of poverty.”

Figure: Poverty Cycle

Causes of the Poverty Trap

Poverty generally associates itself with lack of money or low income. Although, less money or low income contribute to the state of poverty, these terms are not the only factor that cause poverty. There are various factors which can perpetuate the vicious poverty cycle. The most destructive case of a this trap could start from individuals to the national governments. Some of other conditions in an economy that can cause poverty traps are;

  • Low wages
  • Poor work opportunities
  • Violence and conflict
  • Inequality and disparity
  • Poor quality education
  • Corruption and failed governance
  • Lack of basic infrastructure

Models of Poverty Traps

There are various dimensions to models of poverty traps. There are many ways one can fragment the poverty traps. Paun Collier presented four forms of poverty traps:

  1. A conflict trap
  2. A natural resources trap
  3. A land-lord with bad neighbors trap
  4. A poor governance trap

Similarly, other different economists have defined poverty traps in various different models.

Saving-Based Poverty Trap

Saving-based trap is among the early ideas of defining poverty trap. This model is simple: if a country is in a poor state to save, then it is in an unfavorable position to accumulate capital. This results in income growing at the rate of total factor of production. If productivity is low or zero, the income growth is stagnant. Poor people won’t be able to escape the vicious poverty cycle.

Big-Push Models of Poverty Trap

This model of trap suggests that poverty is a function of inequitable resource distribution between modern and traditional sectors i.e. manufacturing and agriculture. If an economy devotes most of its resources to the traditional sector, wages will be equalized at lower levels across sectors and if an economy devotes most of its resources to modern sectors i.e. manufacturing and innovative sectors, benefit will yield towards high in both sectors leading to high income.

The coordination failure of investment in the modern and traditional sector delivers a poverty trap.

Nutritional Poverty Trap

There is a relationship between food consumption and physical work capacity. Poor people are too malnourished to be physically able for a productive job. Nutritional trap suggests that poor people do not have the ability to have enough food  (calories), making them physically less able to participate in any productive job (high earning job). A low earning job will pay the low income. Low income individuals (poor people) won’t be able to buy nutritious food. Hence, poor people are trapped in the vicious cycle of poverty.


World Bank

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