This paper focuses on the micro-level impact of aid-funded projects and how the design of such projects can maximise their impact on poverty alleviation. It draws on the literature and on field research among sex workers in Kolkata, India, that provides evidence about the impact of raising aspirations in a marginalised, stigmatised community. Findings include the following:
- Conventional analyses of poverty traps do not often consider 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 one case in which interventions aimed at raising aspirations had measurable success.
