How to Reduce Poverty in Poor Countries

This is a review of three books that look at the problem of poverty reduction from a micro level. They build on developments in behavioral economics which show that individual decisions are not always rational. They give numerous  examples of the irrational decisions that are made by poor people in poor countries. They focus on ways in which the poor can be trained to make better decisions that will enable development to take place.

The criticism of this approach it that it underplays the importance of political economy. The US and most Western economies benefited from strong partnerships between industry and government. Industry flourished to the extent that government provided the necessary infrastructure and educated the labor force. China provides another example of how governments can reduce poverty by focusing resources on public goods which provide the basis for development.

The problem is that many poor countries also have corrupt governments which impede development. Both approaches may be needed to reduce poverty in poor nations.