Reviewed by Aug 27, 2020| Updated on
A poverty trap is an economic condition created due to loss of capital. Due to the poverty trap, governments have to infuse capital to escape a condition of poverty. The economic condition of poverty trap also indicates difficulty in acquiring capital by individuals who need it, lack of adequate credit facilities and infrastructure.
Understanding Poverty Trap
Factors leading to the creation of a poverty trap include extreme legislations on the acquisition of land and other natural resources required for production. Also, including extreme legislations for obtaining environment clearances, lack of public utilities, public infrastructure, non-availability of credit facilities, social and political disturbances lack basic education facilities, and so on.
The government can fight a poverty trap by spending on social welfare measures, such as the provision of employment programmes, basic and elementary education programmes, and creation of public infrastructure and medical facilities at low or nil cost to the public. Other measures also include the provision of loan facilities at low-interest rates or without collateral security.
Provision of capital facilities enables individuals to come out of poverty, create self-employment, and a regular stream of income. Provision of capital, basic education, and infrastructure enables individuals to come out of poverty. Also, the provision of basic medical facilities helps in eradication of life-threatening diseases.
A research report by the National Bureau of Economic Research (NBER) in 2013 reveals that countries lacking basic medical facilities and health conditions remain poverty-ridden with low economic growth and per capita income. A similar case is seen in a country with less money and credit facilities.
Various developed countries in the world, including those part of OECD (Organisation for Economic Co-operation and Development), actively provide financial aid to developing countries, participate in joint venture programmes for infrastructure development and industrial development.
The measures taken by the developed countries help developing countries progress and create a market for developed countries. The financial aids are provided in the form of loans, capital investments, business investments and so on.