- A key policy concern in emerging-market economies is the appropriate design of policy interventions to alleviate chronic poverty. Largely missing from conventional analyses of poverty traps are the psychological mechanisms through which the experience of poverty forms the beliefs, values and aspirations of the poor.
- Pro-poor policies tend to focus on relaxing external constraints that may perpetuate poverty traps, such as lack of credit or insecure property rights, but internal constraints such as learned helplessness, pessimistic beliefs and an external locus of control are also important.
- These internal constraints are endogenous because they adapt to the experience of chronic poverty. Over time, however, they become an independent source of disadvantage for poor persons in their own right.
- Pro-poor policies aimed at raising aspirations will alleviate poverty more effectively than those that address external constraints alone.
- The 'Dream Building' sessions pioneered by the Durbar Foundation to empower a marginalized, stigmatized community of sex workers in Kolkata provides suggestive evidence of the potential impact of interventions in raising aspirations.