Bangladesh study suggests a one-time boost can be enough to climb out of poverty

A long-term study from Bangladesh co-authored by MIT economist Clare Balboni presents a promising solution to chronic poverty in the developing world, suggesting that when rural poor people receive a one-time capital boost, it helps them accumulate assets, find better occupations and climb out of poverty.

The study, titled “Why Do People Stay Poor?” appears in the May issue of the Quarterly Journal of Economics. Co-authors include Balboni, Oriana Bandiera, Robin Burgess, Maitreesh Ghatak, and Anton Heil.

According to a recent report by MIT News, the study suggests poverty is not the product of an individual's capabilities or attitudes, but instead, a result of the fact that those in poverty find themselves stuck in a "poverty trap" where a lack of resources prevents them from being able to improve their circumstances. Because of this, acquiring a productive asset, like one cow, can be enough to help those in poverty out of this trap and rural people may take up livestock rearing, more land cultivation, and sustain better incomes, the report states.

In their study, scholars examined data from a long-term survey project involving 23,000 households in 1,309 villages, administered by BRAC, a major NGO in Bangladesh. Women in half of the households included in the study's "antipoverty" group—covering 6,000 poor rural households—were offered a one-time asset transfer worth about $500 and complementary training and support in 2007, while the rest served as a control group after 2011, with surveys of the households conducted in 2007, 2009, 2011, 2014, and 2018.

After four years, for women given a cow in 2007, earnings increased by 37%, consumption rose by 10%, ownership of household durables increased by 110% and extreme poverty declined by 15%, compared to the control group. 

“The poor in these contexts are not unable to take on more productive employment, they simply lack the productive assets to do so,”  Balboni told MIT News.

This means something simple as acquiring even just one cow allowed members of very poor households to move from being under-employed laborers to working more with livestock and in land cultivation. Data found that to claim those who are poor do not want to work is also untrue, as hours worked reported rose when people had more work options to choose from. According to the study, about 98% of poor households were composed of wage laborers before the intervention and about 98% would choose to put hours into livestock rearing given enough assets. 

“The poor are trapped in these occupations as a result of the fact that they are born poor,” Balboni said. 

According to the report, "The study estimates that the economic misallocation resulting from the poverty trap in this setting is 15 times the one-time cost of taking households across the poverty threshold." While Balboni focuses primarily on environmental economics, other MIT scholars have also analyzed this subject. 

In a paper published in late 2021, MIT economists Abhijit Banerjee and Esther Duflo, with doctoral student Garima Sharma, found that a similar BRAC program in rural India showed income increases of 30% while producing economic benefits at least four times the cost of the program, the report states. The research was funded, in part, by The British Academy, as well as the U.K.’s Economic and Social Research Council-Department for International Development Joint Scheme for Research on International Development.