What Is the Poverty Trap?


SEATTLE — The United States is a nation united by principles. In his 1931 book, Epic of America, historian James Truslow Adams famously defined a principle that encouraged many dreamers to migrate to the young nation: “The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.” Is this principle attainable? It depends on who is asked. The poverty trap illustrates that. What is the poverty trap?

The poverty trap is a situation in which a person who is poor is unable to escape poverty. The effects of it can be devastating. In developing countries where poverty is extreme, the trap is lethal. Some reasons people are unable to escape poverty in developing nations are:

  • No money to spare for savings
  • Inability to trade because of violence or distance
  • Little human labor available because of malnutrition, disease and violence
  • Little education due to time, cost, disease and survival work
  • Natural disasters, war and famine

Some believe the poverty trap is a myth. Others believe it is grounded in fact. According to the Economic Times, the poverty trap usually is caused by a shortage of capital. This means that people in the country lack ways to generate income to get out of poverty. Evidence of this can be seen in the economies of Burundi, Haiti and Nicaragua.

In the opening of their article, “Do Poverty Traps Exist? Assessing the Evidence” Aart Kraay and David McKenzie state that per capita income in these three nations in 1960 was $347, $1,512 and $2,491 respectively. Fifty years later in 2010, per capita income was relatively the same, at $396, $1,411 and $2,289.

The numbers above show little change in each of the countries’ economies in over half of a century. In 2017, these three countries still rank as some of the poorest in the world. According to the World Bank, Burundi and Haiti are still classified as low-income economies. Their gross national income (GNI) per capita is $1,005 or less. Nicaragua is classified as a lower middle-income economy. Its GNI is between $1,006 and $3,955. The slow growth of the economies in these three countries shows the poverty trap is grounded in fact.

The poverty trap is deemed to be a myth because many poor countries have seen economic growth. In a study of economic growth among 110 low-, middle- and high-income countries between 1960 and 2010, the average income growth in Gross Domestic Product for all countries included was found to be 1.9 percent per year. There was a positive increase in economic growth for all countries involved, regardless of income level.

In addition, it was found the economic growth in the 20 poorest countries was 2.2 percent per year, higher than the global average. The world’s poorest economies are not stagnant, and perhaps poverty can be escaped.

What is the poverty trap? Is it a myth? Is it a fact? While there is no concrete answer to the aforementioned questions, what remains true is that poverty exists. It pervades in extreme forms in developing nations. Developed nations have a responsibility to send aid to countries suffering from severe poverty. Aid has effects that last long after the initial investment.

Jeanine Thomas
Photo: Flickr


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