The Economic Lives of the Poor

The Economic Lives of the Poor
Abhijit V. Banerjee and Esther Duflo
October 2006

An interesting paper with data showing what do the poor do in economic lifes - where they spend their money, where their earn their money from, whats the infrastructure and assests they have. It also tries to postulate some reasons for the patterns see. They do this for 13 countries through analysis of survey data. For India they did a survey in udaipur whose results are presented:

In udaipur poor (defined as below $2 a day - in the paper they seperate this into two categories below $1 and $1-$2) spend around 60% on food and 14% on festivals, in UP/Bihar expenditure on food is around 75-80%. An analysis of food expenditure shows that for every extra income only between 1/4th to 2/3rd is spent on food - saying that increasing income by $1 doesnt mean that all additional money goes to food. Even among the type of food more expensive and less calorie food is preferred ( preference for wheat/rice which are expensive over millets).On average there is 5% expenses on tobacco/alcohol, 5-6% on health and 1% on education. Expenses on education are 5% in Hyderabad among the poor. Majority of the poor are involved in multiple occupations - agriculture, labor, enterprenial work. All occupations lack scale and poor dont generally gain skills as they move from one job to next. There is temporary migration - but usually poor dont migrate for long. Access to credit, insurance are almost absent. Savings are also absent. In explaining lack of savings the paper postulates - even in cases where poor have money to save - lack of resistance to temptation to spend is one reason (temptation to spend on that extra sweet which the child wants, which might be taken for granted for us but not for the poor) and also
"one senses a reluctance of poor people to commit themselves psychologically to a project of making more money. Perhaps at some level this avoidance is emotionally wise: Thinking about the economic problems of life must make it harder to avoid confronting the sheer inadequacy of the standard of living faced by the extremely poor."

http://econ-www.mit.edu/files/530