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Poverty Traps and Appalachia

In this chapter, I provide some general ideas on how to conceptualize poverty traps and speculate on their applicability to understanding Appalachian poverty. My goal is to stimulate thinking on Appalachia that exploits contemporary perspectives in economics on the sources of persistent poverty and inequality. To do this, I focus on both the theory of poverty traps as well as issues in the econometric assessment of their empirical salience. While I will describe different definitions of poverty traps below, all of these definitions have the common feature that poverty, be it for a family, a community, or a larger aggregate, is highly persistent. In other words, one cannot expect contemporaneous poverty to simply correct itself, except over very long time horizons, if at all. Why should poverty traps be of particular importance to policymakers? One reason for why poverty traps are of particular importance is that they can provide a prima facie justification for government interventions on equality of opportunity grounds. John Roemer has argued persuasively that equality of opportunity requires that individual socioeconomic prospects not be affected by factors of which an individual has no control; this perspective provides a way of integrating personal responsibility into the assessment of equality of opportunity. 1 By itself, the ethical case for government interventions implied by equality of opportunity or other considerations is inadequate for policy evaluation. A poverty trap generated by deficiencies in early childhood development calls for very different interventions than one Durlauf (1996b,2006) has applied Roemer's reasoning to provide a justification of government interventions when poverty traps are present. The ethical justification for interventions is most obvious if one considers the future socioeconomic prospects of its children. Following Roemer's logic; it is self-evident that children are not responsible for the environments in which they grow up, whether at a family or a community level. While some subtleties exist in translating this lack of responsibility into an ethical case for government intervention (for example one needs to address the rights of parents to provide differential opportunities for their children), it is fair to say that the presence of a poverty trap provides a prime facie case for government intervention. 1 See Roemer (1998) for an overview of his work. 2 caused by features of a regional labor market. Hence, a satisfactory theory of poverty traps needs to account for mechanisms as well as the basic facts of poverty persistence. 2 …