Poverty traps at multiple scales

Welfare dynamics under the poverty trap hypothesis. From Barrett and Swallow 2006

Christopher Barrett and Brent Swallow recently published an interesting paper in World Development on what the authors term ‘Fractal poverty traps’. These are the sort of poverty traps that develops where multiple dynamic equilibria exist simultaneously at multiple scales of analysis. The figure to right shows welfare dynamics under the poverty traps hypothesis.

The authors argue that the strategies that people choose depends on their assets as well as on the risks that they have to deal with, and they give the following example (from Lybbert et al. 1004):

Lybbert, Barrett, Desta, and Coppock (2004) demonstrate that southern Ethiopian pastoralists face two strategies— migratory or sedentarized pastoralism—reflecting two different dynamic wealth equilibria. The dynamic wealth equilibrium associated with migration is relatively high, while that associated with sedentarization is low. Pastoralists prefer not to sedentarize, but if they start off with too small a herd or lose too many animals to drought, disease or (human or wildlife) predators, the superior strategy of transhumant grazing is not accessible to them, for reasons Lybbert et al. (2004) explain. Poorer pastoralists therefore adopt a sedentarization strategy and predictably settle into a low-level wealth equilibrium. The key to understanding the genesis of poverty traps therefore lies in understanding the nature of transitions—or, more importantly, the absence of transitions—between strategies. Why do some pastoralists remain mobile while others do not? Why do some farmers adopt improved production technologies or enter high value-added marketing channels while others do not? What are the barriers that effectively preclude adoption of superior strategies?

According to the authors this is a reason why the UN Millennium Project final report emphasises the need for large initial investments – to push poor individuals, communities, and nations over thresholds so that different strategies become available and feasible. This is particularly important in situations of ‘fractal’ poverty traps:

Small adjustments at any one of these levels are unlikely to move the system away from its dominant, stable dynamic equilibrium. Governments, markets and communities are simultaneously weak in places characterized by fractal poverty traps. No unit operates at a high-level equilibrium in such a system. All seem simultaneously trapped in low-level equilibria.

They suggest four interrelated poverty reduction strategies:

First, it is possible that significant but shortlived transfers to individuals, households, communities, and nations caught in low-level equilibria can enable them to cross crucial thresholds presently inaccessible to them and thereby make it feasible for them to switch to positive growth trajectories that can carry them out of persistent poverty. …

Second, public agencies need to assess the possibilities for eliminating or moving thresholds through interventions at aggregate scales that make previously inaccessible strategies feasible at more disaggregated scales. …
Third, there is a critical need for effective safety nets set above critical thresholds so as to prevent people from falling unexpectedly into chronic poverty. Safety nets that can prevent the non-poor from falling into poverty in response to uninsured shocks should be included in poverty reduction strategies. …

Finally, fractal poverty traps carry important implications for decentralization. … Prioritization exercises must take place at multiple scales and there must be serious attempts to integrate these, not just cursory exercises as has too often been the case.

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