1 Notes on Poverty Traps and Appalachia

In these notes, 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. My discussion reflects the large body of modern literature on persistent poverty. Azariadis and Stachurski (2005) is an extensive survey of poverty traps with an orientation toward cross-country differences. With respect to national economies, poverty trap analysis has been important in understanding the continuing levels deprivation in much of the world. Durlauf (2004) provides an analogous survey from the vantage point of neighborhood effects and their attendant effects on inequality1; ghettos are often regarded as a canonical example of a neighborhood level-poverty trap. The generative mechanisms for poverty traps of course differ according to the scale of the units under study. I conjecture Appalachia may be an example of a poverty trap, although regions per se are the not the usual scale at which poverty traps are studied in modern research, there are aspects of poverty traps for both aggregate economies and for local neighborhoods that provide insights into regions. While I am not aware of any modern research in economics that explicitly studies Appalachia from the perspective of poverty traps, ideas closely related to poverty traps have long been associated with the region. Over 30 years ago, Billings (1974)2 described standard thinking on Appalachia