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This chapter focuses on the role that public capital may play in helping a poor country escape from a poverty trap, that is, a low-growth equilibrium. The focus of the discussion is on the nonlinearities that may characterize the benefits associated with public capital: for instance, once an efficient, reliable, and uncongested transport network is in place, the direct benefits resulting from building yet another highway may be more limited. These nonlinearities, which may take the form of network externalities, are reviewed in the first part. The second part extends the basic model presented in Chapter 1 to account for network externalities. The possibility of multiple equilibria, and the role of a Big Push in public investment in infrastructure, is then examined. Several alternative channels through which public capital can produce an escape from a poverty trap are studied next, including effects through time allocated to education, health outcomes, and technology adoption, in a setting where the decision to switch technologies is endogenously determined through a rate-of-return arbitrage condition. The last section discusses how aid volatility, by adversely affecting public investment programs, can also lead to stagnation.

Illustrates how the concept of current well‐being can be put to work on the contemporary world. I draw upon evidence from the contemporary world's poorest countries to suggest that, interestingly, the three constituent spheres of citizenship may well be synergistically related to one another. The findings indicate that democracy and civil liberties are not only intrinsically valuable, but may even be instruments for bringing about material progress in poor countries. The fact remains though that, within democratic countries, there are enormous differences in people's life chances. Democracies in poor regions harbour malnourished people. It is argued that the malnourished are caught in poverty traps. In order to explain the findings, we are led to study institutions and the role they play in determining the allocation of resources.

Is poverty a binding constraint on economic growth in sub-Saharan Africa? Plausible theories of economy-wide poverty traps abound, but the empirical cross-country growth literature is indecisive on the existence of multiple equilibria and is likely to remain so. This chapter introduces the weaker concept of development traps, defined as intervals of income over which growth is low and conditional convergence fails. The chapter argues that development traps are of broader empirical relevance than poverty traps, both at the aggregate level and for households. The chapter argues that the most promising directions for research involve microeconomic investigations of the effects of poverty on productivity. The chapter reviews the dominant mechanisms through which these effects may emerge and suggests specific avenues for country-based research.

In this chapter we examine whether absorptive capacity can constitute sufficient justification for rejecting the proposal of a large aid increase to support the ‘big push’. We argue that the probability of a poverty trap exists for many countries, in particular the least developed countries (LDCs) and that an increase in aid is relevant for them. Moreover we show that the decrease in marginal aid returns is slower in vulnerable countries, which supports the rationale to include vulnerability as one of the aid allocation criteria. We examine the main obstacles to absorptive capacity, such as disbursement constraints and short-term bottlenecks, macroeconomic problems, including loss in competitiveness and macroeconomic volatility, as well as the weakening of institutions. The general conclusion that we draw for reconciling the two approaches is that absorptive capacity strongly influenced by aid itself or by its modalities. The big push and absorptive capacity approaches cannot be reconciled without aid reform supported by an aid increase. First, what is needed is to balance the utilization of aid between activities that are directly productive and those that are social in nature in order to avoid transitory loss of competitiveness. Second, schemes that facilitate the use of aid as insurance against exogenous shocks are to be enhanced because they lower the risk of Dutch disease, and contribute to faster and more equitable growth over the long term. Finally a performance-based conditionality should replace the traditional policy-based one in order to cope with several absorptive capacity limitations, particularly the sociopolitical one. An aid-supported big push will not be effective without new ownership of policy by the recipient countries.

This chapter explores the impact of demographic change on economic growth. It is argued that the interaction of economic growth with population dynamics can create a poverty trap. There may be two clubs: one with low income and high population growth rates, and the other with high income and low population growth rates. Transition between these clubs may be rare, but when it occurs, it does so very quickly, due to the positive feedbacks between growth and demographic change.

Microfinancial interventions are designed as responses to poverty traps, where the poor cannot invest because they lack wealth, but poverty persists without investment. Interventions include microcredit programs, asset grants to micro-entrepreneurs, and small asset transfers to the very poor. We review the empirical evidence on such interventions, and assess our ability to account for this evidence using quantitative theory. At least three general lessons arise consistently. First, no policies produce large scale miracle escapes from poverty traps, that is, none has been shown to lead to permanent increases in income or consumption well beyond poverty levels nor to extended and sizable increases in the rate of growth of income, consumption, and capital that predict such escapes. Second, take-up rates for microcredit are typically low, while those of asset transfer programs are much higher. Third, heterogeneous responses to policies are evident in almost all studies, where impacts vary by initial wealth, size of intervention, gender, ability, entrepreneurial status, financial access, and time frame.

In many places building adaptive capacity will be a critical part of preparing for climate change. This chapter discusses ways to build adaptive capacity in society, which is defined as attempts to improve people’s broad ability to cope with and adapt to change, and to take advantages of the opportunities provided by change. This chapter explores various strategies for building adaptive capacity, by reviewing key findings from the various academic disciplines that have long histories of application and research in building adaptive capacity, including human geography, development studies, agricultural economics, and understanding social-ecological systems. The chapter is focused primarily on the individual, community, and local institution scales, and provides examples related to natural resource use and management where possible. Specific strategies include avoiding or escaping poverty traps, creating robust and flexible institutions, improving governance through increased transparency, and fostering the ability of individuals and institutions to learn about climate change. Many of the policies and programs to build adaptive capacity will require external donor pressure and aid, as well as government support.

We study the causal mechanisms behind persistent poverty. Some theoretical models combine non-convex technology with market failures to explain poverty traps, but do they exist in the data? One prominent strand of the empirical literature focuses on searching for a threshold associated with nonlinear growth that would lead to multiple equilibria, with one such equilibrium below a poverty line. Using original data on Boran pastoralists of southern Ethiopia where such a threshold has been previous identified, we find that nonlinear wealth dynamics arise purely due to shocks. In favorable states of nature, expected herd growth is linear and universal. We further show that ability to deal with shocks matters. Multiple stable equilibria characterize the wealth dynamics of herders of higher ability, while those with lower ability converge to a unique equilibrium at a small herd size. The result is a system in which multiple path dynamics are in play simultaneously for different subpopulations, each characterized by a different poverty trap mechanism.

This chapter describes the shift towards the selective targeting of welfare in both Western and Eastern European countries in recent years. It discusses the pros and cons of means testing in relation to the broad aims of social policy: to do away with poverty, social injustice, and dependency, and to integrate all groups and classes into society. The chapter shows that means testing demotivates poor people from trying to be better off, because of the effects of the poverty trap; the high rates of marginal tax to which they are exposed. Means testing also provides major obstacles to social exchange and participation and creates ineffective delivery of social rights, since a substantial non-take-up of benefits is inherent in the system.

Explores the idea that there is joint causation between income and human capital and that this may generate a poverty trap. It first looks at empirical results on this two‐way causality, namely, at estimates of the income elasticity of demand for calories and of the effect of education on productivity. It then presents a model of income distribution in an economy with a feedback between income and human capital. The model illustrates how this joint causation, when accompanied by increasing returns in human capital investment and capital market imperfections, may result in persistent income inequality.

Nearly 75 percent of the world’s poorest people live in rural areas and depend heavily on agriculture for their livelihoods. Globally, these households produce a large fraction of the world’s food, and yet they are perpetually some of the world’s most food insecure. How is so great an irony possible? This chapter examines food security for the world’s smallholder farmers, and the factors across space and time that continue to make lasting food security an elusive goal for many of them. Smallholder farmers are by no means a homogenous group, but understanding some of the common constraints they face offers some clues about policies and strategies that might more effectively change the odds for sustainable success in their favor. In particular, the chapter explores linkages to water and energy security across scales. Food security—both via production and entitlements—depends heavily on access to these two resources; thinking about food security from the perspective of energy and water also provides new insights into ways to break the cycle of low productivity that keeps many smallholder farmers mired in poverty.

This chapter provides an analysis of the interaction between natural disasters and human development. It provides a decomposition of the channels through which “human made disasters with a natural trigger” affect long term growth. It categorizes countries by level of exposure and investigates the approaches which can prevent a vicious cycle between natural disasters and low development. Among highly exposed countries, sustainable development needs to go hand in hand with an increase in resilience through both preparedness and mitigation. The chapter highlights the potential of an adaptive capacity at the institutional level, economic diversification, flexibility in aid disbursement, the use of index micro-insurances, and sustainable agriculture.

This chapter discusses the extent to which the neoclassical long-term growth models developed for the advanced economies are able to reproduce the developing countries’ long-term growth path, convergence with the advanced countries, and steady state equilibrium. To do so, the chapter assesses first whether the hypotheses at the basis of the original Solow model are verified in a prototypical developing country. It then lists the factors that explain the lack of convergence between the GDP per capita of developing and developed countries predicted by the Solow model, and the problems faced by low-income countries in exiting low-level equilibrium poverty traps. It then presents a modified Solow model characterized by multiple equilibria that fits the situation of less developed countries.

This chapter evaluates both the current system and a system based on a Citizen's Income against three further criteria The tax and benefits structure should not disincentivise public goods such as enterprise, training, long-term relationships between the parents of children, and the ability to provide financially for oneself and one's dependents. The tax and benefits structure should incentivise the efficient allocation of resources, and so contribute to an efficient economy. Our tax and benefits structure should treat people with dignity, and not stigmatise individuals involved in any part of the system. The chapter finds that a Citizen's Income ameliorates a number of traps: the unemployment, invalidity, poverty, lone parent, part-time, lack of skills, and savings traps; and so imposes fewer disincentives than the current system on skill acquisition, self-employment, long-term relationships, and the ability to climb out of poverty. It finds that in a number of respects a Citizen's Income would give us a more efficient economy, and that it would enhance individuals’ dignity, because everyone would receive a Citizen's Income, thus reducing stigma.

Development requires both ability and coordination, but the abilities and practices that facilitate coordinating production contribute decisively to inequality. The second hypothesis is introduced: Inherent properties of knowledge transmission, the skill-matching requirements of team production, patterns of social imitation, and production interdependencies generate starkly unequal locational and sectoral agglomerations of production, knowledge acquisition, innovation, and growth. To illustrate these points, this chapter relates individual incentives to invest in acquiring skills and education to these influences. People in areas with high concentrations of knowledge and skill encounter strong incentives to work on acquiring knowledge—and vice versa. Additionally, developing sophisticated production techniques requires a critical mass of suitable firms in order to create viable markets and for skilled labor and sophisticated equipment. Difficult coordination CAPs lead to patterns of unbalanced growth. Finally, rural-to-urban migration often reinforces these locational dynamics.

This chapter extends Chapter 8’s political settlement framework by addressing business-state interactions operating within specific types of settlements. Three levels of interaction follow. At the macro level, political settlements shape such interactions. At an intermediate (meso) level, market configurations—that is, their degrees of competitiveness and domestic versus export orientation—affect the demands businesses place on the state. These dynamics influence the accessibility (openness) of micro-level exchange agreements (deals) as well as their credibility—specifically, the degree to which they are ordered, meaning honored and predictable, or disordered. A shift from disordered to ordered deals reflects resolution of second-order CAPs of enforcing agreements. Such a shift can prompt growth accelerations that facilitate escaping poverty traps. More substantial development, however, requires addressing Chapter 4’s complex coordination CAPs.

This chapter shows that, contrary to much conventional wisdom, the prevalence of micronutrient deficiencies declines less quickly with per capita income growth than do the wasting or undernourishment indicators that guide most popular and high-level policy discussions of hunger and food insecurity. The chapter reviews the many entry points within food systems through which micronutrient deficiencies might be addressed, from biofortification of seed to pre-planting mineral amendments to soils and water, to post-harvest preservation of vitamins and of minerals in processing, to fortification of food with essential minerals during processing, to consumer education and subsidies or taxes to change relative prices among food groups. Because micronutrient deficiencies often lead to health insults with irreversible consequences for cognitive and physical work capacity, The chapter focuses on food systems in Africa, the world region in which micronutrient deficiencies are most severe, ultra-poverty is most pervasive, and the evidence on poverty traps most compelling.

Chapter 7 explains why the sovereign states of today tend to be weak. The chapter discusses how the features that once made them strong have significantly eroded—and therefore contribute toward the relative strength of PITs. International norms that once facilitated sovereign state wealth and territorial expansion now contribute to their smallness and poverty. Their monopolization of control that once helped them improve internal efficiency now contributes to promoting nationalistic opposition and fragmentation. And although sovereign states had great success at removing the anarchical conditions within their borders, some of the same fearful and dangerous anarchical conditions remain in their relations with each other at the international level. In many of the ways that sovereign states tend to fail (with their frequent absence of the public goods, emergency protection, common markets, and other-regarding norms of a larger state), PITs succeed.

Political settlements underlie institutional construction and thus a society’s prospects for development. Without some mutually understood method for settling major disputes through politics rather than organized violence, institutions cannot resolve CAPs that impede development. This chapter develops my approach to categorizing political settlements. It offers a framework that permits systematic inquiry into relationships between distributions of power, institutional evolution, and prospects for resolving a series of context-specific CAPs of achieving economic and political development. Political settlements differ fundamentally according to their social foundations’which groups are party to the settlement’and their configuration of authority among insider elites. A four-quadrant typology distinguishes between broad and narrow social foundations and coherent (unipolar) versus disorganized (multipolar) configurations of authority. Additionally, the presence of resource constraints and mutually understood threats to elite political survival conditions motivations to create institutions.