Poor Economics Review

Poor Economics

If you do any reading in the field of development economics, you suddenly realize that there are several schools of thought when it comes to the best poverty alleviation methods.  Poor Economics by Abhijit V. Banerjee and Esther Duflo does a great job of walking the line and sticking to cases where they could glean data about what works and what doesn’t when it comes to helping the poor – on both sides of the debate.

poor_economics_coverThe examples illustrated in the book are data-driven and are reminiscent of books in the behavioral economics field – basically trying to determine what drives behavior and decision-making.  Here are a few interesting trends the book pointed out, and then we’ll follow that with some takeaways.

  • A basic assumption is that when people are hungry enough to be weak and unable to work, they might spiral downward into making less and less money and starving even more.  But research showed this was not the case for most adults.  When given additional money to spend on food, they did not buy more calories, but instead spent the money on better-tasting calories (like sugary/sweet foods).  Children do benefit from more calories, however.  Every additional year of improved nutrition was shown to increase the child’s average income in adulthood.
  • Research shows that we all have only a limited supply of willpower.  When we make important decisions and fight temptations, our willpower is drained. Often, the poor are making so many decisions daily (about decisions that are already made for us in wealthier countries) that they procrastinate on some very important things.  For instance, bed nets can prevent malaria, but bed nets cost money and poor people tend to procrastinate in this purchasing decision.  When a select group were given free bed nets, they were much more likely to buy one at full price when given the opportunity later.  The decision to “invest” in bed nets that make a difference in quality of life had already been made.
  • In Uganda, research showed that only 13 percent of funds allocated by the government to schools was actually getting there due to corruption.  When the results were reported to local citizens, there was suddenly accountability and an uproar occurred.  Five years later, the percentage of funds going to schools was up to 80 percent.  Having people care about corruption and its prevention can be transformative.

And here are a few takeaways:

  • The poor are responsible for almost all aspects of their lives.  Unlike how we have it in the U.S., they can’t find credit, banking, government aid, or reduced/free medical care.  Poverty alleviation strategies should consider changes that open up access to these resources.
  • There are valid reasons that some of these opportunities/markets are lacking in countries like Haiti.  Outside firms with technology or institutional advantages might be able to creatively implement new markets (as in the case of micro-loans).
  • Individuals and communities seem to inherently believe that foreign organizations claiming to help their economic or physical well-being do not make true claims. While this is not covered in the book, you may recall certain villages in Africa during the Ebola outbreak in 2014 thought the measures being taken to prevent the disease were actually a plot to give them the disease.  Information campaigns seem necessary to educate and must be presented in attractive ways (like via radio or TV dramas that have wide appeal).
  • We shouldn’t assume that poor countries are destined to fail because they’ve always been poor.  There are methods of public policy, accountability, and education that can change extractive political and economic institutions for the better.
  • As with many relationships, expectations matter. We must set high expectations for those in poverty and give them opportunities to see the vision of how things can be, not how they have always been.  We at Espwa believe each person has value and that there’s always a reason for hope.


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