Economists reveal factors that help poor people lift themselves out of poverty

Nov 10, 2010

What factors contribute to poor people in developing countries lifting themselves out of poverty?

A paper by Anan Pawasutipaisit of Thammasat University and Robert M. Townsend of MIT provides important insights into what kinds of households might be most effective at moving themselves out of poverty and how they are able do it.

The paper, "Wealth Accumulation and Factors Accounting for Success" appears in the current issue of the Journal of Econometrics. It suggests that poor people who skillfully manage their assets are especially successful in improving their net worth. The authors discovered that the ability of to increase their wealth was strongly related with their rate of saving and, even more so, with their ability to create a high return on assets.

This means that those households who used their existing assets most productively were more successful at pulling themselves out of poverty. Many of the successful households reinvested their money in their small businesses and farms, suggesting that they are well aware of the source of their success.

Pawasutipaisit and Townsend identified these trends through an extensive survey that was taken from more than 500 Thai households across four provinces every month between 1999 and 2005. From this data, the authors created detailed, financial accounts for each home. They discovered that, over the course of their 7-year study, poor households grew their net worth by an average of 22% per year while rich households grew by just 0.09%.

The data also allowed the authors to identify traits that the most successful households tended to share in common: more highly-educated household members, a younger age of the head of household, a higher ratio of debt to assets, and a preference for formal financial markets over informal ones. But the largest source of variation in the rate of return on assets was household-specific and uncorrelated with any of these variables. This suggests there is great persistence among the most successful households.

"The data seem to show pretty conclusively that successful households are not just lucky," observes author Robert M. Townsend. "They are doing something systematic, month after month, year after year. The next step, of course, is to figure out what the associated skills and attitudes really are."

Explore further: Texas OKs most new history textbooks amid outcry

add to favorites email to friend print save as pdf

Related Stories

Callers of all incomes ditching landlines for cell

Dec 16, 2009

(AP) -- The number of households with cell phones but no landlines continues to grow, but the recession doesn't seem to be forcing poor cellular users to abandon their traditional wired phones any faster than higher-income ...

American seniors living longer on less, study

Jan 28, 2009

Older Americans have experienced huge, negative financial shifts that now make it more difficult to enter retirement with sustainable economic security, a new study finds. Seventy-eight percent of all senior households are ...

Recommended for you

Study identifies why re-educating torturers may not work

Nov 21, 2014

Many human rights educators assume – incorrectly, as it turns out – that police and military officers in India who support the torture of suspects do so because they are either immoral or ignorant. This ...

Research helps raise awareness of human trafficking

Nov 21, 2014

Human trafficking –– or the control, ownership and sale of another human being for monetary gain –– was a common occurrence centuries ago, but many believe it doesn't exist in this day and age and not in this country.

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.