The Economic Lives of the Poor

The Eco­nomic Lives of the Poor is a 2007 pa­per by 2019 No­bel Lau­re­ates[1] Ab­hijit Ban­er­jee and Es­ther Du­flo. It de­scribes re­sults from house­hold sur­veys of the poor (less than $2.16 a day in 1993 PPP dol­lars) and ex­tremely poor (less than $1.08 a day in 1993 PPP dol­lars) con­ducted in Cote d’Ivoire, Gu­atemala, In­dia, In­done­sia, Mex­ico, Ni­caragua, Pak­istan, Panama, Pa­pua New Guinea, Peru, South Africa, Tan­za­nia, and Ti­mor Leste (East Ti­mor). What fol­lows is a con­den­sa­tion of that pa­per high­light­ing the most im­por­tant and strik­ing claims. I fo­cus on the de­scrip­tive part of the pa­per and omit the sec­ond part of the pa­per in­ves­ti­gat­ing some con­comi­tant eco­nomic puz­zles.

Liv­ing arrangements

Ex­tended fam­i­lies are com­mon among the ex­tremely poor with the me­dian house­hold con­tain­ing be­tween seven and eight mem­bers. The pop­u­la­tion tends to be young with only about one quar­ter as many over 51s as 21--50s (In the U.S., the ra­tio is 0.6 rather than ~0.25.).

Spending

Food and other con­sump­tion purchases

Food ex­pen­di­tures typ­i­cally rep­re­sent be­tween one half and three quar­ters of the bud­get.[2] Ex­pen­di­ture on al­co­hol and to­bacco ranges from about 1 per­cent to about 8 per­cent. The me­dian ex­tremely poor house­hold in Udaipur spent 10 per­cent of its bud­get on fes­ti­vals, but ex­pen­di­ture on movies, the­ater and shows is less than 1 per­cent.

Own­er­ship of assets

Land own­er­ship among the ex­tremely poor ranges from 4 per­cent in Mex­ico to 99 per­cent in Udaipur. How­ever, the owned plots are of­ten small—less than three hectares—and of poor qual­ity.

“In Udaipur, where we have de­tailed as­set data, most ex­tremely poor house­holds have a bed or a cot, but only about 10 per­cent have a chair or a stool and 5 per­cent have a table. [...] No one has a phone.”

Health and well-being

The bot­tom decile of in­come in an In­dian sur­vey sam­ple av­er­ages 1400 calories a day. Sixty-five per­cent of poor adults in Udaipur have a BMI that clas­sifies them as un­der­weight and 55 per­cent are ane­mic.

Between 11 and 46 per­cent (de­pend­ing on the coun­try) of the ex­tremely poor re­port hav­ing been bedrid­den for at least one day in the the last month.

“While the poor cer­tainly feel poor, their lev­els of self-re­ported hap­piness or self-re­ported health lev­els are not par­tic­u­larly low (Ban­er­jee, Du­flo, and Deaton, 2004). On the other hand, the poor do re­port be­ing un­der a great deal of stress, both fi­nan­cial and psy­cholog­i­cal.”

In­vest­ment in education

Ed­u­ca­tion ex­pen­di­ture is gen­er­ally quite low be­cause pri­mary school­ing is of­ten free. In 12 of the 13 coun­tries ex­am­ined, at least 50 per­cent of ex­tremely poor chil­dren (ages 7 to 12) are in school.

Earning

Day la­bor, self-em­ploy­ment in agri­cul­ture and small-scale non-agri­cul­tural en­trepreneur­ship are each com­mon. In fact, many of the poor have mul­ti­ple oc­cu­pa­tions (pos­si­bly a form of risk spread­ing).

“Strik­ingly, al­most 10 per­cent of the time of the av­er­age house­hold [sur­veyed in West Ben­gal] is spent on gath­er­ing fuel, ei­ther for use at home or for sale.”

Markets

Credit

From 11 to 93 per­cent (de­pend­ing on the coun­try) of ru­ral, ex­tremely poor house­holds have out­stand­ing debt. The credit is usu­ally from in­for­mal sources and the in­ter­est is gen­er­ally above 3 per­cent per month. High in­ter­est re­flects high en­force­ment cost rather than high risk of de­fault.

Savings

Sav­ings ac­counts are gen­er­ally un­com­mon. Micro­cre­dit may serve as a rough sub­sti­tute with the benefit of an ex­ter­nal en­forcer (i.e. the cred­i­tor de­mands re­pay­ment which may be eas­ier than forc­ing your­self to save).

Insurance

Less than 6 per­cent of the ex­tremely poor are cov­ered by health in­surance. In prin­ci­ple, com­mu­nity mem­bers can in­for­mally in­sure each other for a va­ri­ety of risks but this works best for idiosyn­cratic risks and not for, for ex­am­ple, a village-wide drought.

Land

Though land own­er­ship is rel­a­tively com­mon, records of own­er­ship are less com­mon. This makes sale or mort­gage difficult. Often the poor work land owned by oth­ers which re­duces in­cen­tives for best effort.

Infrastructure

“The availa­bil­ity of phys­i­cal in­fras­truc­ture to the poor like elec­tric­ity, tap wa­ter, and even ba­sic san­i­ta­tion (like ac­cess to a la­trine) varies enor­mously across coun­tries. In our sam­ple of 13 coun­tries, the num­ber of ru­ral poor house­holds with ac­cess to tap wa­ter varies from none in Udaipur to 36 per­cent in Gu­atemala. The availa­bil­ity of elec­tric­ity varies from 1.3 per­cent in Tan­za­nia to 99 per­cent in Mex­ico. The availa­bil­ity of a la­trine varies from none in Udaipur to 100 per­cent in Ni­caragua. Differ­ent kinds of in­fras­truc­ture do not always ap­pear to­gether.”

The qual­ity of health fa­cil­ities for the poor tends to be low with health work­ers in one sam­ple ab­sent 35 per­cent of the time. In one study, an ex­pert panel found that the av­er­age treat­ment sug­gested by a health provider in their sam­ple was more likely to do harm than good. In­fant mor­tal­ity among the ru­ral, ex­tremely poor ranges from 3.4 per­cent in In­done­sia to 16.7 per­cent in Pak­istan.

Ed­u­ca­tional fa­cil­ities are similarly lack­ing. Teach­ers in one sam­ple were found to be ab­sent 19 per­cent of the time. A na­tion­wide sur­vey in In­dia found that 22 per­cent of sixth to eighth grade chil­dren can­not read a sec­ond-grade text while 65.5 per­cent of chil­dren ages 7 to 14 can’t do di­vi­sion.

(Cross-posted from my blog.)


  1. Yes, yes, we all know that The Sveriges Riks­bank Prize in Eco­nomic Sciences in Me­mory of Alfred No­bel is a fake No­bel. ↩︎

  2. We’ll get back to the effects of this later. ↩︎