Influential Theory in the Economics of Poverty

Question

As far as I can tell, research on the economics of poverty is very empirically driven, and this is probably appropriate. What kind of economic theory has been developed though? I'd also be interested in theory of some influence too. To avoid wholly opinion-based answers, let's measure influence by how the theory directed other research or anti-poverty measures. As an example, I know papers have been written on the theory of poverty traps, but I'm not sure that concept is a contribution from theorists so much as some theorists developed a model for what might have already been an empirical observation. Are there any cases where concepts started in theory?

Links to papers are good, but the question is also about history to some extent, so it would be nice if you can show a trail of this paper influenced that paper or this policy.

Answer 1

To extend @Majoko's comment, you may be very interested in the book Poor Economics which discusses many of the issues you note. It specifically discusses issues with theory, and of course has a lot of empirical work to back it up.

Perhaps on the other end of the spectrum is general equilibrium theory applied to poverty and the developing world. you should really look into Robert Townsend's work. His "Thai Project" is a massive dive into some of the questions you're asking. A reasonable place to start is probably with his books.

As an aside, I was originally hooked on his work by his fantastic application of microeconomic general equilibrium theory in The Medieval Village Economy, which has sadly gone out of print (although I see there are now some used copies finally selling for less than $70, which is nice). He takes very sparse data and asks what theory might be able to tell us -- then very carefully and purposefully walks the reader from a most basic model through many extensions to explore important possible variations of the medieval experience. It's really an excellent example of applied general equilibrium work, and how theory might still be tested/explored with little data.

This isn't my area of research, but I'm very interested to see other answers appear here.

Answer 2

If you are looking for a light-weight, definitely somewhat partisan take on development economics (I realize this is only part of what you want) check out The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics. It goes into the theory and history of development economics and its application to policy.

If you're looking for a good overview of development economics without the history or context but with more technical details, the standard reference is I think still Debraj Ray's Development Economics.

Answer 3

Below I'll give you a partial answer by talking about research on poverty traps. Before that, though, let me point out that it is a bit difficult to find any theory that is not motivated by observations. Theories of poverty often have a trap because theorists want to explain why there are locations in the world where everyone is poor, and other places where everyone is rich. Multiple equilibria is one popular way to explain this simple fact. My development prof in grad school would always hide a slide with Admiral Ackbar somewhere in the discussion of a new development model: "It's a trap!"

Maybe the first model of a poverty trap was the big push model of Paul Rosenstein-Rodan in 1943. Rosenstein-Rodan built on insights from the work of Allyn Young who died in 1929. Due to externalities, the investment by individual firms is not enough to lift a country out of poverty. The government needs to come in and subsidize large investment projects.

The more recent poverty trap literature is legion. I doubt it is their original idea, but Banerjee and Duflo talk about the nutritional poverty trap in their recent book, "Poor Economics". If you are too weak to work, you can't get money to buy healthy food. You need healthy food to make you strong enough to work.

If there is learning by doing, economic specialization can be harmful. Alwyn Young (1991) is about how opening up to trade can lead poor countries to specialize in traditional industries which have no room for productivity improvements.

Rather than go any farther into the taxonomy of poverty traps, I will just direct you to a fairly recent survey by Stachurski and Azariades (2005) which discusses many other mechanisms which lead to a poverty trap.