ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Definition: Poverty trap is a spiraling mechanism which forces people to remain poor. It is so binding in itself that it doesn’t allow the poor people to escape it. Poverty trap generally happens in developing and under-developing countries, and is caused by a lack of capital and credit to people.

Detailed explanation-2: -A poverty trap is created when an economic system requires a significant amount of capital to escape poverty. When individuals lack this capital, they may also find it difficult to acquire it, creating a self-reinforcing cycle of poverty.

Detailed explanation-3: -According to British economist Paul Collier, the four types of poverty traps are the conflict trap, the natural resource trap, being landlocked, and poor governance. These “traps” are why the poorest countries remain poor and struggle to catch up with the developing world.

Detailed explanation-4: -In economics, a cycle of poverty or poverty trap is caused by self-reinforcing mechanisms that cause poverty, once it exists, to persist unless there is outside intervention. It can persist across generations, and when applied to developing countries, is also known as a development trap.

Detailed explanation-5: -A situation in which there is little incentive for workers earning a low income to earn extra income, because it would result in having to either pay higher tax and/or losing some of their benefit payments.