Few ideas in economics are as enduring or as influential as poverty traps. For over a century, economists have described and, later, formally modeled, mechanisms that make poverty self-reinforcing for individuals and nations alike. Scholars of economic development rely on poverty traps to explain persistent wealth disparities across individuals and nations that are too large to be explained by differences in fundamental traits or exposure to idiosyncratic shocks. Practitioners rely on poverty traps to guide the design and the rationale of anti-poverty policies. If poverty is self-reinforcing, that is, arising from feedback mechanisms generated by low income, then one-off transfers that enable households to cross critical thresholds will have persistent effects on productivity. This chapter reviews the empirical literature on poverty traps together with evidence on the mechanisms driving poverty and the effectiveness of alternative interventions aimed at poverty reduction.
Type: Working Paper
Authors: Bandiera, Oriana; Burgess, Robin ; Heil, Anton; and Sulaiman, Munshi
Year: 2026
