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The study of poverty within development economics has been structured by successive rival paradigms offering distinct theoretical diagnoses and policy prescriptions. Early frameworks emerged from broader development thought. Classical-Development Political Economy, rooted in the analyses of Smith, Ricardo, and Marx, viewed poverty as an outcome of distributional conflicts and the dynamics of capital accumulation within expanding economic systems. The post-war era introduced Modernization Theory, which framed poverty as a temporary condition of traditional societies that would be alleviated through industrialization, technological diffusion, and cultural change following Western models. In direct opposition, Structuralist Economics, exemplified by the work of Prebisch, argued that poverty in the periphery was perpetuated by international trade structures and domestic industrial bottlenecks, requiring active state planning and import-substitution industrialization. Concurrently, Dependency Theory radicalized this view, positing that poverty in developing nations was a direct and necessary consequence of their exploitative integration into the global capitalist system.
A decisive counter-movement arose in the 1980s with the Neoclassical Counterrevolution. This paradigm rejected state-led structuralism and attributed persistent poverty to government-induced distortions—such as price controls, protectionism, and inefficient public enterprises—that stifled market incentives and growth. Its policy prescription centered on liberalization, privatization, and stabilization to unleash the poverty-reducing power of free markets and individual rationality. This market-centric view dominated policy circles for decades, emphasizing income growth as the primary mechanism for poverty reduction.
The late 20th century saw the rise of two influential paradigms that shifted focus from aggregate income to micro-level foundations. The Capabilities Approach, pioneered by Sen, redefined poverty as a deprivation of substantive freedoms and human capabilities—such as health, education, and agency—rather than merely low income. This framework directed attention toward multidimensional measurement and the expansion of human potential as the core development objective. Simultaneously, the New Institutional Economics of Development applied the tools of transaction costs and property rights to poverty, analyzing how inefficient institutions, insecure contracts, and missing markets trap individuals and communities in low-productivity equilibria.
The most recent major paradigm is Experimental Development Economics. Originating with the application of randomized controlled trials to poverty interventions by researchers such as Banerjee and Duflo, this school embodies a methodological commitment to field experimentation as the primary means for identifying causal mechanisms and evaluating the efficacy of specific anti-poverty policies, from microfinance to conditional cash transfers. It represents a pragmatic, evidence-driven approach that often operates within the broader contexts established by the preceding paradigms, testing their micro-level assumptions. Today, the field of poverty economics remains a contested space where these canonical schools—from structuralist political economy to market liberalism, capabilities, institutional analysis, and experimental methodology—continue to provide competing lenses for understanding and alleviating deprivation.