“The Economic Lives of the Poor” – A Critical Article Review

I. Summary

This paper looks into the daily choices, constrains and challenges faced by the extremely poor and the poor (that live under $1,08 and $2,16 a day respectively) based on household surveys conducted in 13 countries. These values that set the benchmark were chosen in accordance to the purchasing power parity in 1993 exchange rate to define the poverty line. Banerjee and Duflo central research question for this paper is “how actually does on live on less that $1 per day?” (2007:141). This paper is more descriptive than analytical, in the sense that the authors are not putting forward any theory, but rather analysing and “describing what their (the poor) lives look like” and the potential constrains behind their daily choices (Ibid: 143). In order to draw accurate conclusions, the authors use as the main sources of data World Bank and RAND Corporation surveys and a independent survey taken in India by Banerjee and collaborators together with existing research literature. Altogether they provide detailed information on what people in these countries “consume, where they work and how they save and borrow” (Ibid: 143). The comparisons are draw between countries, and within countries looking at the different choices faced by each region (in the case of India) and between the rural and the urban areas.

The most enlightening findings of this study allow us to refute standard prejudices about how the poor spend their money, their entrepreneurship skills and how the private sector in education and health actually provide less qualified professionals than the public service. Just to exemplify how they change the stereotypical views, when we hear the word extremely poor, we automatically associate that these people do not have enough money to eat or to afford any kind of basic needs. Well, this study came to show us that actually not all the budget is spent in food (only 56 to 78 per cent), and not always do the poor choose to spent it on the most nutritious grains (Ibid: 145). We came to realise that also intoxicating products and festivals and cultural celebrations can each account for almost 10 per cent of their annual budget and even when there is a small increase in the budget, most of it goes to buy better tasting calories and more expensive ones rather than spending in more healthy options. These are interesting findings because it can lead us to question the efficiency of decision –making in the lives of the poor and whether some social mobility could be seen if more efficient decision-making was made.

II. Place in the Literature and Contributions

The premise that “Being poor almost certainly affects the way people think and decide” (Duflo, 2003), is behind the behavioural economists research agenda, in which the Banerjee and Duflo (2007) paper takes part. This paper contributes to the existing literature as it provides a collective database obtained through a triangulation method that compares different surveys and literature, filling the gap of information on the daily choices of poor people around the globe. Broader questions in this academic debate look at the existence or not of poverty traps in the developing world (Kraay and McKenzie, 2014; The Economist Unit, 09/2014), the effects of government intervention and social markets (Shleifer and Vishny, 1994) and the different types of redistribution and their impact in development (Benabou-Tirole, 2006). Duflo (2003) has pointed out in previous work the need of evaluations decision-making of the poor and its impact on the broader political spectrum, in this sense, this paper has not put forward any theory but it has provided detailed information that can be used for further research in this field.

III. Comments on Strengths (1-3) and Weaknesses (4-8)

  1. The methodology used to collect data is a huge strength of this paper, from researching in international databases to comparing it with existing literature to the particularity of including variables such as ‘temporary migration’ and the ‘lack of specialization’, which very few studies look at.
  2. Due to the background of the authors, they also take into account field experiments as a source of information for economic casual relations. This provides again a very unique set of agglomerated data that can be used for further research on other social sciences fields, such as sociology and policy making.
  3. The last section of the article answers important questions that should be taken into account by development practise, such as ‘why so many entrepreneurs’, ‘why don’t the poor eat better’, as they offer insights to project managers and NGOs working on the field on whether the development strategies adopted are actually contributing to the sustainable development of a nation.
  4. However, the authors fail to put forward a clear hypothesis, so from the start we know they felt there was a gap in information on how do poor live, but that is all they propose to look at, without aiming at answering contributing to the existing economic development theories or practices. So as a result we can be sceptical to what extend does this article add anything to the already existing literature.
  5. After proposing to look at 13 nations, we expected that equal emphasis would be placed in the different regions in order to show a overall view of the way poor live across nations. Nevertheless, analysis from regions in India precede any other nation, to the point where under some sections there is no mention of an entire region – for example there is no mention of any Latin American country under the section of “The market for Insurance and the Poor”. This would have been important to create continuity of analysis throughout different regions.
  6. This paper does not discuss income inequality only wealth inequality. If it had analysed this factor it would had noticed that income inequality in developing countries has risen precipitously over the past few decades, which could explain the different gaps in wealth inequality over different regions (The Economist Team, 09/2014).
  7. The biggest weakness is that Banerjee and Duflo attempt to provide a universalistic view of how the poor live, is that they do not explain why there are these different statistics from country to country. At the end, they provide us data on different ways of living in different countries but constantly referring to the poor as one unified group across nations, putting them all in the same ‘bucket’. If Banerjee and Duflo should have recognised that the cultural – historic background of all these 13 countries have very different origins, which influences their choices of today and how they set up their priorities. This cannot be understood unless we take into account their colonial and indigenous experiences and the impact of their civil struggles in the way they live today. Therefore, the strength of this article and its relevance to other social science departments, would had been higher if conclusions would have been draw based on regional living choices and explaining why these different choices take place.
  8. Lastly, the strength of this paper would have been enhanced if there was a historical comparison of the evolution in the choice of poor. For example, when looking into poverty traps, Aart Kraay and David McKenzie (2014) look into per capita income in the Nicaragua and Haiti and Burundi over 50 years to conclude that little has changed. In this way we can assess long-term impact of the current development practices and actually try and improve them.

 

 

IV.Conclusion and Recommendations for future research

 

Even though this paper offers thoughtful insights into the daily choices of poor people in 13 different countries, it does not acknowledge the diversity of ‘poor people’ according to their regional background. Saying that no tap water is available in Udaipur versus 36 per cent in Guatemala who have access, does not give us any further idea of why infrastructure in Guatemala is better than India. We are left with questions such as, whether the colonial experience of Guatemala led to better infrastructures than the experience of India? Further research should look into change of choices in the live of poor people over time, by region. It should also analyse whether any social mobility is taking place to assess whether development practices are having a sustainable impact or not.

 

Bibliography

Banerjee, Abhijit V., and Esther Duflo. 2007. “The Economic Lives of the Poor.” Journal of Economic Perspectives, 21(1): 141-168.

Benabou-Tirole, “Incentives and Prosocial Behavior”, The American Economic Review, VOL. 96 NO. 5, December 2006 , pp. 1652 – 1678, available at https://www.princeton.edu/~rbenabou/papers/AER%202006.pdf

Duflo, E. “Poor but Rational?”, January 2003, available online at http://economics-files.pomona.edu/Andrabi/courses/Econ126/duflopoorbutrational.pdf

Kraay and McKenzie, Do Poverty traps exist? Assessing the Evidence”, Journal of Economic Perspectives, Volume 28, Number 3, Summer 2014, pp. 127–148 http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.28.3.127

Shleifer, Andrei and Robert Vishny (1994), “The Politics of Market Socialism”, Journal of Economic Perspectives, 8(2), 165-176

The Economist Team, “Do poor countries really get richer?”, The Economist, Sep 19th 2014, available online at http://www.economist.com/blogs/freeexchange/2014/09/poverty-traps-0

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